Alibaba bites bullet in renewed push for growth amid antitrust climate, increased competition

Alibaba will invest incremental profits in its new financial year into strategic areas, such as technology innovation and support for merchants
Its renewed growth focus comes amid Beijing’s efforts to rein in the unchecked growth and influence of the country’s Big Tech companies

Alibaba

Minghe Huin BeijingandYujie Xuein Hong Kong

Published: 9:00pm, 14 May 2021

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Alibaba Group Holding will strengthen its engagement with consumers and merchants in the world’s largest e-commerce market, according to analysts, in an effort to put the company’s first quarterly loss in nine years behind after being slapped with a record fine by regulators for antitrust violations.

“The retail business of Alibaba, which is the country’s biggest [e-commerce] player, still maintains a high growth rate,” said Chen Tao, an analyst at internet research and consulting firm Analysys. “It will not be easily surpassed by others.”

The US$2.8 billion fine imposed against Alibaba by the State Administration for Market Regulation in April had no material impact on the company’s core advantages, including strong market recognition and advanced capabilities in matching consumers with products and merchants, according to Chen.

Alibaba, the parent company of the South China Morning Post, has promised to assist regulators in maintaining “market order”, while adhering to the country’s antitrust rules.

A person walks past a sign at Alibaba Group Holding’s headquarters in Hangzhou, capital of eastern Zhejiang province, on May 8, 2021. Photo: Bloomberg

Some analysts said Alibaba still faces challenges ahead.

“Alibaba needs to ramp up its effort on new commerce channels, including community group buying in sinking markets,” said Li Chengdong, chief executive of e-commerce consultancy Dolphin Think Tank. “Otherwise, its advantages will be lost to its competitors.”

The “sinking markets” Li mentioned refer to China’s small third-tier cities and rural areas, where consumption has been forecast by Morgan Stanley to surge to US$6.9 trillion in 2030.

“We remain very excited about the growth of China’s consumption economy, which is benefiting from the acceleration of digitalisation in all aspects of life and work,” said Alibaba chairman and chief executive Daniel Zhang Yong during the company’s latest earnings call with analysts on Thursday.

Alibaba’s global active consumer size has already exceeded “a historic milestone of one billion annual active consumers”, according to the company’s latest financial report. Its total gross merchandise volume, referring to the total value of goods sold on all of Alibaba’s online platforms, hit a record US$1.2 trillion in the firm’s financial year ended March.

Alibaba posts fourth-quarter loss after paying record antitrust fine

“We have gone through all kinds of challenges, including Covid-19, fierce competition, as well as the anti-monopoly investigation,” Zhang said on Thursday. “We plan to invest all of our incremental profits in the coming year into core strategic areas such as technology innovation, support for merchants to lower their operating costs, user acquisition and experience enhancement.”

The renewed growth focus of Alibaba comes amid Beijing’s efforts to rein in the unchecked growth and influence of the country’s Big Tech companies, after leaving them largely untouched for years.

The company reported a loss of 7.65 billion yuan (US$1.185 billion) in the quarter ended March, after accounting for its 18.2 billion yuan fine. Sales, however, jumped 64 per cent to 187.4 billion yuan for the three months ended March, in line with analysts’ estimates.

Zhang was keen to play up how Alibaba’s business fundamentals remain strong, especially its number of consumers.

The Hangzhou-based company had 811 million annual active users in China during the March quarter, as it added 32 million new users. That beat rival Pinduoduo’s 788 million users at the end of December. The average spending per user on Alibaba’s platforms also reached more than 9,200 yuan, which is over four times that of Pinduoduo’s.

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“[Alibaba’s] incremental user [gains] are mainly from less-developed regions,” said Zhang Yi, chief executive at Shenzhen-based iiMedia Research. “This is a typical demographic dividend.”

Zhang indicated that the gradual peaking of Alibaba’s user numbers could be a reason for concern.

“Alibaba is currently facing tremendous pressure in its transformation,” Zhang said. “Alibaba cannot force merchants to pick one from two [any more], so it has to spend a lot of money subsidising its merchants to have them stay on its platform.”

The “pick one from two” tactic forces online merchants to choose only one platform as their exclusive distribution channel.

There are also new competitors emerging. ByteDance, which operates popular short video sharing apps TikTok and Douyin, is expanding efforts in e-commerce as part of a full-frontal assault on China’s established internet companies, while it seeks to diversify sources of revenue.

Still, other analysts are betting on Alibaba to do well, despite the market challenges. “We expect Alibaba to achieve another milestone in the China market in its new financial year. Maintain buy,” according to a report released by Jefferies on Friday.

This article appeared in the South China Morning Post print edition as: Alibaba bites bullet in renewed growth push

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