Chinese e-commerce giant Alibaba plans to nearly double the gross transactions on its platforms in the next five years. On the second day of the company’s 2019 investor day in Hangzhou, China, investors got a comprehensive picture of the future growth plan.

Alibaba management maintained its revenue guidance of 500 billion yuan for fiscal 2020. The company’s near-term goal is to increase annual active consumers from the current 730 million to over one billion in the next five years and nearly double its annual gross merchandise volume from 5.7 trillion yuan in fiscal 2019 to over 10 trillion yuan by 2024. Over the long term, Alibaba (ticker: BABA) wants to reach two billion global consumers by fiscal 2036, create 100 million jobs, and support over 10 million profitable small to medium businesses on its platforms.

The growth of Alibaba’s consumer-facing business should be largely supported by three drivers, the company said at the investor day event:

  • User growth. Alibaba added over 200 million users to its Chinese retail marketplace over the past two years, as well as 130 million active users on its international marketplaces. The company is now 85% penetrated in China’s developed areas and 40% penetrated in less developed areas, which suggests big room for growth still.
  • Category expansion. Alibaba’s digital ecosystem has become more powerful and the company plans to leverage the massive number of consumers on its more established platforms to help grow the relatively nascent areas. There are plenty of cross-selling opportunities between business segments, such as the core retail marketplace Taobao, food-delivery platform, and digital payment tool Alipay. “It will be difficult for competition to catch up,” wrote Citibank analyst Alicia Yap in a Tuesday note.
  • Globalization. Alibaba is expanding to many international markets through acquisitions and local partnerships via platforms such as AliExpress, Lazada, and AliPay.

Alibaba management also updated investors on the latest developments of its different business areas.

  • Alibaba’s cloud unit AliCloud remains the dominant player in China with a 43% market share. Alicloud is expanding aggressively in the Asia Pacific region with presence in Malaysia, Indonesia, Hong Kong, and Macau. Given its regional expertise, AliCloud also is targeting companies from developed countries that want to enter the Chinese market. By controlling costs and improving efficiencies, AliCloud is seeing improved profit growth. Still, CFO Maggie Wu noted that profitability is not the first priority now, and the company expects a short-to-medium trade-off of profit margin for long-term strategic values.
  • Alibaba’s video-streaming website Youku saw 46% year-over-year growth in paying subscribers during the June quarter, driven by its improving original content production. Alibaba also owns an online ticketing platform for live events called Damai, which has over 70% of China’s market share as of 2018. Alibaba aims to provide online infrastructure for the “underdigitalized” entertainment industry in China, providing support services like finance, production, distribution, and venue management.
  • Alibaba’s digital finance subsidiary Ant Financial covers wealth management, micro financing, insurance, credit service, and digital payment platform Alipay. Over 740 million consumers and 28 million small businesses use Ant Financial for digital financing, according to Alibaba, and they have been using more of Ant Financial’s service offerings. About 80% of consumers are using more than three service categories—versus 70% disclosed last year—and 40% are using all five categories—versus 30% from last year. By the second quarter of 2019, Alipay had 900 million annual active users in China and 1.2 billion including global users. Currently, Alipay is accepted by offline merchants in 56 markets and has developed partnership with local e-wallets in 10 markets.
  • Alibaba’s logistics branch Cainiao now has a global parcel network Cainiao Guoguo with over 100 million annual users and a last-mile delivery network Cainiao Post with over 40,000 stations.

For Raymond James analyst Aaron Kessler, Alibaba remains his top Internet mega-cap pick. Kessler believes the continued solid growth in China’s e-commerce market will leave Alibaba—with a 60% market share—the biggest winner. The stock is also valued attractively at about 10.5 times Kessler’s forecast for Alibaba’s 2020 earnings. Kessler rates Alibaba shares as Buy with a target price of $280.

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