Alibaba yesterday beat the street’s estimates on both revenue and earnings, yet its stock ended trading down 2.4%. It was down a further 0.6% in trading before the market opened today (it regained most of those losses in early trading) while short interest in the stock continues to climb, as Tim Culpan at Bloomberg Gadfly notes. What gives?
Alibaba makes most of its money—70% of revenue—from its retail e-commerce business, which serves customers on mainland China. This includes the consumer marketplace Taobao, and the virtual shopping-mall platform T-Mall. One way to measure the health of this segment is by looking at the number of “active buyers,” that is, any user who places an order on these shopping platforms during the year.
That number is growing:
But it looks like Alibaba’s appeal to China’s shoppers may be hitting a limit. Active buyers are barely growing each quarter. Alibaba’s main money-spinning engine may be running low on fuel, which could explain investor skepticism.
This chart says it all:
Alibaba is looking outside its domestic market for growth. That’s why in April it took a controlling stake worth $1 billion in Lazada, the Rocket Internet-developed online retailer that’s focused on Southeast Asia. Lazada in turn just announced that it’s acquiring Singapore online grocer RedMart for an undisclosed sum (Techcrunch puts it at between $30 and $40 million.)
These maneuvers aren’t just expansionary, they’re defensive. Alibaba’s rival Amazon is looking to enter Southeast Asia as soon as next year, according to Techcrunch. The Seattle e-commerce giant is reportedly building up its cold-chain in preparation to launch its online grocery service, which would compete directly with Lazada/Alibaba’s RedMart.
Alibaba’s challenges are twofold: It has to find a way to grow its base of mainland shoppers, while building a new business for millions of Southeast Asian customers from the startups it has acquired. And it has to do both while Amazon makes a grab for market share in China with an aggressive Prime roll-out, and a Singapore launch. The global e-commerce wars just got a little bit fiercer.