Everything about Alibaba

Summary

Alibaba acts as a middleman between buyers and sellers online and facilitates the sale of goods between the two parties through its extensive network of websites. The largest site, Taobao, operates as a fee-free marketplace where neither sellers nor buyers are assessed a fee for completing transactions. Rather, sellers on Taobao pay to rank higher on the site’s internal search engine, generating advertising revenue for Alibaba that resembles Google’s core business model.

  • Core commerce. The core commerce segment is comprised of platforms operating in retail and wholesale commerce in China, retail and wholesale commerce – cross-border and global, logistics services, local consumer services and others.
  • Cloud computing. The cloud computing segment is comprised of Alibaba Cloud, which offers a complete suite of cloud services to customers worldwide, including elastic computing, database, storage, network virtualization services, large scale computing, security, management and application services, big data analytics, a machine learning platform and IoT services.
  • Digital media and entertainment. The digital media and entertainment businesses leverage our deep data insights to serve the broader interests of consumer through our key distribution platform, Youku, and through Alibaba Pictures and our other diverse content platforms that provide online videos, films, live events, news feeds, literature and music, among other areas.
  • Innovation initiatives and others. The innovation initiatives and others segment includes businesses such as Amap, DingTalk, Tmall Genie and others.

Alibaba derive a majority of our China commerce retail revenue from customer management, which primarily consists of:

  • P4P marketing services, where merchants primarily bid for keywords that match product or service listings appearing in search results through our online auction system on a cost-per-click, or CPC, basis. Whether and where the listing will be displayed, and the corresponding prices for the display are determined by the algorithm of our online auction system based on a number of factors with various weights and through a market-based bidding mechanism.
  • In-feed marketing services, where merchants primarily bid to market to groups of consumers with similar profiles that match product or service listings appearing in browser results through our online auction system on a cost-per-click, or CPC, basis. Whether and where the listing will be displayed, and the corresponding prices for the display are determined by the algorithm of our online auction system based on a number of factors with various weights and through a market-based bidding mechanism.
  • Display marketing services, where merchants bid for display positions at fixed prices or prices established by a market-based bidding system on a cost-per-thousand impression, or CPM, basis.

Alibaba Group’s Ecosystem

  • Alipay: Alipay is an online third-party payment platform, launched in 2004 by Alibaba Group. It provides payments and escrow services for transactions on Alibaba Group platforms. Alibaba Group spun off Alipay in 2010.
  • Alimama: Launched in November 2007, Alimama is an online marketing platform that provides marketing and advertising services to sel China Smart Logistics
  • China Smart Logistics: is a proprietary platform that provides real-time access to information to buyers and sellers to improve the efficiency of e-commerce package deliveries. lers on Alibaba Group’s marketplaces.
  • Aliyun: Aliyun develops platforms for cloud computing and data management, ensuring that Alibaba’s e-commerce portals can handle its massive traffic and transaction volumes.

Key Fundamentals

Macro and Competitive Environment

Worldwide Public Cloud Services End-User Spending Forecast (Millions of U.S. Dollars)2019202020212022
Cloud Business Process Services (BPaaS)45,21244,74147,52150,336
Cloud Application Infrastructure Services (PaaS)37,51243,82355,48668,964
Cloud Application Services (SaaS)102,064101,480117,773138,261
Cloud Management and Security Services12,83614,88017,00119,934
Cloud System Infrastructure Services (IaaS)44,45751,42165,26482,225
Desktop as a Service (DaaS)6161,2041,9452,542
Total Market242,696257,549304,990362,263

Risks

  • Over the past year, Alibaba relied more heavily on the growth of its brick-and-mortar stores, direct sales from its cross-border marketplaces, and higher investments in the third-party logistics platform Cainiao to pad its core commerce unit’s growth
  • When we exclude all those lower-margin businesses, Alibaba’s core commerce revenue would only have risen 28% instead of 40% last quarter (Posted a negative loss from operations in all reported segments other than it’s core commerce)
  • Alibaba’s escalating war against Pinduoduo (NASDAQ:PDD), the discount rival that encourages shoppers to make bulk purchases, will likely exacerbate that pressure
  • Tencent (OTC:TCEHY) restructured its businesses to prioritize the growth of its cloud and fintech businesses, which directly compete against Alibaba Cloud and its affiliate AliPay. Tencent’s fintech and business services unit, which houses those two businesses, posted 36% annual revenue growth last quarter

Definitions

  • IaaS is an offering of cloud computing where the provider supplies you on-demand access to computing resources such as networking, storage, and servers.
  • PaaS is an offering of cloud computing where the provider gives you access to a cloud environment in which to develop, manage, and host applications. The provider is responsible for the underlying infrastructure, security, operating systems, and backups.
  • SaaS is an offering of cloud computing where the provider gives you access to their cloud-based software. Instead of installing the software application on your local device, you access the provider’s application using the web or an API.

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