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Can Alibaba Continue to Maintain Its Dominant Position?

What’s interesting about Alibaba is that its GMV is twice that of Amazon


  • Shifting to New Retail strategy to drive top-line growth
  • New Retail strategy provides growth but comes at a cost
  • Superior market share means profit beats its closest rival

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A speech that crashed the share price

  • Back in the late 2020, Jack Ma gave a speech criticizing China’s banking system as being inefficient.
    • The speech led to Chinese government’s realization that China’s big techs are wielding too much power.
  • The Chinese government responded with an immediate cancellation of Ant Group’s IPO and a series of Anti- fines.

Recent updates on Alibaba

  • Ant Group: The company has been restructured into a financial holdings company, which subjects the company to regulations that applies to financial institutions.
    • Alibaba and Ant group has terminated data sharing agreement.
    • There are no plans to revive the IPO of Ant Group.
    • And Alibaba currently holds a 33% stake of Ant Group.
  • Hong Kong primary listing: Hong Kong Stock Exchange has approved Alibaba’s primary listing.
  • Gaining primary listing in Hong Kong would make Alibaba eligible to take part in stock connect with Mainland China.
  • This would give access to qualified Mainland Chinese investors to access Alibaba’s shares.

Revenue breakdown 2022

Business model summary

  • The main revenue driver is the China Commerce segment and can be divided into:
    • Customer management (E-commerce platform)
    • Direct Sale (E-grocery)
  • The China Commerce segment is supported by: Logistics, Local Consumer Service and Cloud segments which help build Alibaba’s ecosystem.

Shifting to New Retail strategy to drive top-line growth

  • Alibaba’s Sun Art, Tmall Supermarket and Freshhippo subsidiaries are instrumental in driving the growth of New Retail strategy.
    • The concept is to blur the line between online and offline retail.
  • Today, all of Alibaba’s subsidiaries’ physical supermarkets and hypermarkets are integrated into Alibaba’s platform.
    • This enables a less-than-one-hour delivery to customers through Alibaba’s ecosystem.

Direct sales to become a new revenue growth engine

  • Direct sales already account for 45% of China commerce segment in 2022 compared to just 16% in 2019.
    • The explosive growth was driven by the pandemic.
  • Digital grocery sales in China reached nearly $200bn in 2021.
    • And the market size is expected to almost double in 2025.

New Retail strategy provides growth but comes at a cost

  • Alibaba’s traditional driver of revenue growth has been its e-commerce platforms.
    • By being the facilitator of exchange between buyers and sellers, Alibaba traditionally has low inventory costs to its revenue.
  • With the surge of revenue contribution coming from direct sale segment, Alibaba has increased its inventory cost that came from operating supermarkets.
    • The consequence of this is the decline in gross profit margin.

Gross margin has consistently been on a decline

  • In 2022, Alibaba’s cost of revenue increased by 28%.
    • Alibaba attributes this to the consolidation of Sun Art which increased the cost of inventory.
    • And the growing expansion of Taocaicai which increases the logistic costs.
  • Alibaba plans to continue investing in direct sales segment which it expects further decline in margin.

Superior market share means profit beats its closest rival

  • In 2021, Alibaba has a market share of 47% of China’s retail ecommerce sale.
    • While its closest rival, has a market share of 17%.
  • This allows Alibaba to outperform on profitability measurements.
  • The risk now for Alibaba is that it falls from its position.
    • While has room to improve.

Consistent value creation compared to rival

  • Unlike, Alibaba has consistently deliver value to its creditors and shareholders.
    • Alibaba’s superior ROIC is attributable to its higher profitability.
    • And Alibaba has more robust ecosystem compared to its rival.
  • Despite anti-monopoly regulations, it is unlikely that will catch to Alibaba soon.

Consensus is bullish

  • Most analysts are bullish on Alibaba.
  • Analysts predict lower gross margin compared to historical average.
    • This is in line with our forecast due to Alibaba consolidating subsidiaries with higher inventory costs.

Get financial statements and assumptions in the full report

P&L – Alibaba

  • Revenue growth is expected to be disrupted by zero covid policy which disrupts supply chain and logistics.

Balance sheet – Alibaba

  • Alibaba is expanding its ecosystems which means continuous expansion of net fixed assets.
  • Alibaba has low proportion of debt to its capital, this gives Alibaba an ability to expand its ecosystem.

Ratios – Alibaba

  • Alibaba is still not expected to pay dividends in order to continue pursuing growth.
  • Alibaba is net cash giving it the ability to continue expanding its ecosystem.

Stock Picking Checklist

Can this company be a ten bagger?

Free cash flow – Alibaba

  • Alibaba is still pursuing growth, I expect increasing level of CAPEX.

Value estimate

  • Expect higher revenue growth than consensus but slightly lower gross margin.
  • The terminal growth rate is put at 4% due to Alibaba still having a long growth runway.

Value estimate

Key risk is regulations

  • Alibaba operates in an increasingly complex legal and regulatory environment.
  • Failure to build successful ecosystem.
  • Alliance risks; synergies between subsidiaries might not be successful.


  • Direct sales to drive further growth.
  • Decline in gross margin due to enhanced focus on direct sale.
  • Dominant position likely to continue despite regulations.

Download the full report as a PDF

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