Alibaba Group Holding LTD - Stocks

Instrument description

The traditional way of shopping for household and personal goods was physically going to stores and spending time to buy the right things. But the advancements of the internet and smartphones has completely transformed the shopping experience. According to recent statistics, more than 1.8 billion people do online shopping. People have the luxury and comfort of ordering anything just sitting in their homes, whether it is clothes, food, or any electronic gadget.

The global electronic retail sales grew to staggering $2.8 trillion in 2018 and are expected to rise to $4.8 trillion in 2023. The online shopping was already growing at a rapid pace, and the Coronavirus outbreak that has forced people to stay at home and increased the importance and value of online shopping nearly ten folds. Today, nearly half of the consumers spend ordering online than physically going to the store. According to a study, almost 42% of the population in the US ordered online grocery due to the Covid-19 pandemic.

One of the pioneer and benchmark companies in online shopping is Alibaba Group Holding Limited. Alibaba is a multinational Chinese conglomerate that specializes in e-commerce, retail, artificial intelligence, and technology. The popular online stores such as Alibaba, Amazon, eBay shared nearly 50% of global e-commerce sales in 2018.

Alibaba operates in a native country, China, along delivers products in 200 countries of the world. The most popular retail and wholesale marketplace for Alibaba includes Taobao, which is a C2C (consumer to consumer) an online shopping platform along with Tmall (business to consumer) a retail platform and other platforms such as 1688.com and Aliexpress for global consumers.

History of Alibaba

Alibaba was formed in 1999 in Hangzhou, Zhejiang, China, by Jack Ma initially as a B2B (Business to Business) marketplace. At the start, Goldman Sachs invested $5 million, and Softbank invested $20 million to Alibaba. The company crossed breakeven and registered profit for the first time in 2002 and achieved remarkable success up till now. In 2003, Alibaba launched Taobao (online marketplace), AliPay (online payment platform), Lynx, Alimama.com (online digital marketing place), and Aliwangwang (instant messaging tool).

Alibaba started trading publicly on the Hong Kong Stock Exchange in 2007, but it delisted in 2012. Alibaba started trading publicly in the US on September 18, 2014. The price per share was $68, and its business grew at such a rapid pace that the company became the largest US IPO in history with $25 billion and making it larger than Facebook, Twitter, and Google combined. On September 19, 2014, Alibaba started trading on the New York Stock Exchange (NYSE), and the initial stock quote recorded was $92.70.

Over the years, Alibaba has done a number of acquisitions to expand its business and diversify its portfolio. Some of the prominent acquisitions of Alibaba include AutoNavi in 2014, South China Morning Post in 2015, Eleme in 2018, and Keruyun in 2020.

However, the biggest deal was Alibaba acquiring Lazada Group SA, which is a business company based in Singapore. Alibaba first paid $1 billion to take control of the company in 2016, and another $1 billion in June 2017. In 2018, Alibaba announced that it would take 83% of the Lazada Group by paying an additional $2 billion.

Today, Alibaba is not only a global leader in the e-commerce and online retail industry but has a wide array of businesses in various sectors of the market. Alibaba is also recognized as one of the largest investment and venture capital companies in the world.

Current Business and Investment of Alibaba

Alibaba has many subsidiaries, but the main function of the company is the buying and selling of products, services, technology through online and mobile platforms. The company allows brands and businesses in China and across the world to take advantage of online e-commerce. The core business function of Alibaba consists of e-commerce, cloud computing, mobile media and entertainment, and other user-friendly initiatives. The company also runs logistic and local service sectors

The retail business of Alibaba in China is done on the big online commerce destination known as Taobao, and Tmall, which is a third-party platform for retailers and brands. The wholesale domestic marketplace in China is 1688.com, while the global wholesale trade is done through Alibaba.com.

Alibaba has developed into a company with diverse functions as it offers B2B, B2C, and C2C services through its online platform and web portals. Alibaba has a firm grip on cloud computing services, electronic payment services, and shopping search engines.

Risk and Potential in Alibaba Business Environment

Alibaba enjoys a steady increase in its overall due to its core online retail business. The company continues to look for a growth opportunity and invest in advancing technology and play a part in digital transformation and venture into more international markets. The SWOT analysis is a strategic framework that allows the company to get a broad look at the internal and external factors. The SWOT analysis of Alibaba is

• Strengths

Alibaba dominates the e-commerce sector and cloud services. The Taobao and Tmall platforms have progressed at an exponential pace. The e-commerce accounts for more than 80% of revenue. The financial position of Alibaba has increased each year. The cloud service business grew 75% from 2018 to 2019. Alibaba also has excellent relationships with consumers, merchants, third-party dealers, and enterprises.

• Weaknesses

Alibaba has developed in a global brand, but more than 60% of the revenue is still generated from China. The company still needs to make progress in Asian and European markets. Alibaba relies mostly on its e-commerce business, which can be a problem as there other companies vying to offer similar products and services.

• Opportunities

The international expansion of business can help Alibaba cater to a wider audience and increase its consumer base, which is mostly settled in China. The growth in Asian and European markets will reduce the dependence on the domestic Chinese market. Investing in research and innovation also can give the edge to Alibaba over strong competitors such as Amazon. In fact, the company spent an estimated $1.3 billion. Acquiring new and emerging technology startups can allow Alibaba to diversify its business and further increase revenue.

• Threats

The digital revolution is advancing at a rapid pace, and there is intense competition among domestic and international e-commerce companies. Alibaba faces major competition from other e-commerce companies such as Amazon and also from eBay. The growing political tensions and trade barrier between China and the USA significantly impacts the sales and profits of Alibaba.

Stock Analysis of Alibaba

Alibaba is listed and actively trades on the NYSE with the ticker symbol BABA. The company is listed under the ‘Retail Trade’ Sector, and the industry is ‘Internet Retail.’ Alibaba is also listed on the Hong Kong Stock Exchange with the ticker symbol ‘9988.’

Over the years, Alibaba has seen many price fluctuations as at the beginning, the share price was $59 in September 2015, but with a massive surge, the share price became $208 in June 2018. However, the share price saw many ups and down in 2018 and went as low as $132 in December 2018 but again surged and touched $227.43 in January 2020.

In January 2018, Alibaba was the second Asian company to cross a valuation mark of $500 billion, and the company also closed the gap with rival Tencent. In November 2019, due to secondary listing on the Hong Kong Stock Exchange, Alibaba priced its shares at $22.5 and managed to raise almost $13 billion

Alibaba released the fiscal year report on March 31, 2020, that showed the annual revenue of the company to be approximately $72 billion with 35% YoY increase while the net income was $140 billion. The report highlighted that most of the company’s revenue came from e-commerce platforms, and local e-commerce contributed to 65% of the revenue. The cloud computing division is also progressing quickly and is almost doubled since its launch in 2017. The cloud computing business is thought to reach $10 billion until the end of 2020.

Alibaba Group also achieved a milestone of $1 trillion in total merchandise sold through online retail sales this year. The company said that it has one of the biggest active consumer base with 960 million, with 780 million consumers from China and 180 million consumers from the rest of the world. This year, the Coronavirus outbreak has badly affected businesses, but Alibaba being an online business, has seen positive outcomes with an increase in its online retail sales. Experts suggest that Alibaba will look to grow with a 20% rate, which is still significant and better than its competitors.

The information above is for education purposes only and cannot be considered as investment advice. Past performance and forecasts are not reliable indicators of future results.