Alibaba Group Holding Limited – Company of the Month – October 2019

Company name: Alibaba Group Holding Limited

Founder: Jack Ma

Year: 4^th April, 1999

Total Assets: US$143.801 billion

Revenue: US$56.152 billion

Net Income: US$11.955 billion

Country:  China

Headquarters: No. 969 West Wen Yi Road

Industry: Conglomerate

Webpage: https://www.alibabagroup.com/en/global/home

Number of employees: 101,958

 

Alibaba Group (BABA) was founded by Jack Ma, who remains the company’s chief operating officer, and 17 others in 1999. At its core, the Chinese company is an eCommerce giant made up of several online platforms that supply consumer-to-consumer (C2C), business-to-consumer (B2C), and business-to-business (B2B) services. However, Alibaba is also involved in several different kinds of business.

Alibaba is often likened to Amazon (AMZN); whereas the 2 companies are similar, it’s vital to understand how they disagree. Both companies are among the world’s largest, based mostly in eCommerce and much diversified. However, in contrast to Amazon, Alibaba itself isn’t a retailer. Instead, Alibaba’s network of interlocking platforms simply facilitates eCommerce between makers, suppliers, retailers, and customers.

Alibaba is very big. By some estimates, it already controls around 80% of all online retail sales in China. In 2014, Alibaba made history with its $25 billion IPO offering, the highest ever. it’s currently one in every one of the ten most valuable companies in the world, the fifth largest web company in the world, and in January 2018 it became the second Asian company to be valued over $500 billion, after Tencent Holdings. On June 5th, 2019, once Alibaba released its annual report and 20-F, it had a capitalization of $397.8 billion. The company contains a current quantitative relation of 1.3 and a return on equity (ROE) of 3.2%.

Alibaba’s long goal is to produce businesses with a comprehensive, encompassing platform that has the entire infrastructure necessary for eCommerce. Because it stands, the company makes the overwhelming majority of its cash from charging businesses to use the same infrastructure. However, on the far side of this core, Alibaba’s portfolio is extraordinarily diversified. Additionally to its eCommerce sites, the company conjointly owns a shipping company, a messaging app, and a movie studio, just to name a few.

In its filings, Alibaba splits its business up into four segments: “core commerce,” “cloud computing,” “digital media and entertainment,” and “innovation initiatives and others.” Core commerce is the company’s only profitable section and also the most important. Alibaba’s income was nearly $12 billion in 2018.

According to its annual report, 85.5% of Alibaba’s $56.2 billion in revenue came from what it calls “core commerce” in 2018. This dominant section of Alibaba’s business is made from 13 eCommerce platforms that permit makers, retailers, and customers to conduct many various styles of transactions while not departure Alibaba’s system. Alibaba profits from these platforms by charging businesses commissions per dealings, yearly subscriptions to take care of digital storefronts or to rank higher in search results.

Alibaba also offers a collection of cloud computing products like Google’s G Suite. Though this product doesn’t seem to be nonetheless profitable for Alibaba and made up solely 5.4% of Alibaba’s revenue in 2018, they’re generating quick-growing revenues. This section of Alibaba’s business has seen a compound annual rate of growth (CAGR) of 104%, growing from $116.3 million in 2014 to $1.95 billion in 2018. Still, it incurred a $450 million operating loss in 2018.

In the past 10 years, Alibaba’s cloud suite has mature to become competitive with the likes of Tencent Cloud, Amazon net Services, and even Google’s G Suite. Because of Alibaba’s long goal, it already contains a ton of expertise building digital infrastructures to support its platform businesses. Thus it’s only natural that it’s enraptured into cloud computing, another business supported digital infrastructures.

Alibaba has also invested heavily in digital media and amusement corporations that are on the face of it unrelated to its core commerce section. For example, Alibaba owns the Chinese video website Youku, which is sort of a cross between Netflix and Youtube. It owns the South China Morning Post newspaper, offers a music service referred to as Alibaba Music, a sports broadcaster referred to as Alisports, and even owns a movie studio referred to as Alibaba Pictures. These businesses build cash in an exceeding form of ways that, as well as advertising, newspaper sales, and subscriptions. In 2018, this section earned Alibaba $2.85 billion in revenue, which is 5 times what it made in 2016. However, this business section remains unprofitable, with $2.05 billion in losses in 2018.

Alibaba has conjointly closely-held a thirty-second stake in Weibo, one in every one of China’s biggest social media platforms, since 2016. This has well-tried a key investment for Alibaba.

The smallest section of Alibaba’s business conjointly is its R&D department, which is wherever the corporate teams several of its still-developing investments. Here, the corporate is experimenting with ventures like its computer operative systems, knowledgeable communication platform referred to as DingDing that has been compared to Slack, an organization referred to as A Map that deals in ride-hailing and congestion reduction, and even AliHealth, that positions itself as a medical service and pharmaceutical eCommerce business. This section has seen the foremost moderate gains, $480 million in 2018 up from $260 million in 2016.

To understand Alibaba’s larger strategy, it may be instructive to consider the company’s eCommerce system as an enormous digital mall. This analogy illustrates that Alibaba’s “core commerce” primarily consists of leasing the retail house to businesses of every kind and size. Like all mall owners, Alibaba’s job is easy. It should realize ways that to funnel customers into the mall, convert them to shop for things there and incentivize them to remain for as long as attainable. Thus, Alibaba’s appurtenant businesses—like video websites, social media platforms, digital wallets, etc.—all serve either as doorways into Alibaba’s mall or as attractions that build it fun and convenient to remain within the mall for long periods of your time.

Since its beginning, Alibaba has invested in 163 completely different corporations. It’s maybe the foremost powerful investment company in China, rivaled solely by Tencent Holdings (TCTZF). Most of Alibaba’s investments are in Chinese corporations, significantly in eCommerce and supplying. However, that doesn’t mean Alibaba’s sights are restricted to the Chinese market. The company has also invested within businesses within the U.S., just like the Seattle-based computer game (VR) company Magic Leap, the India-based digital wallet company Paytm, the Israel-based augmented reality (AR) company Lumus. Most of those investments are in innovative, extraordinarily competitive industries like computer science, virtual and increased reality, digital wallets, eCommerce, and different transportation solutions (like bike-sharing). Internationally, Alibaba is especially centered on VR and area units, AI, and firms that cut back friction in eCommerce.

The only things standing in Alibaba’s approach are different corporations like Alibaba. Its prime competitors include Tencent Holdings (TCTZF), Amazon (AMZN), Google (GOOGLE), Microsoft (MSFT), and Facebook (FB). These companies are seriously heavy hitters. But again, so is Alibaba.