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Why Alibaba’s Revenue Growth Is Exceeding Merchandising Growth

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Alibaba’s revenue and GMV growth

During fiscal 3Q16, Alibaba’s (BABA) revenues from its commercial retail business in China (FXI) rose at a higher rate than the GMV (gross merchandise volume) growth rate for its retail marketplace in China. This was primarily due to an increase in online marketing service revenue resulting from delivering better value proposition to Alibaba’s merchants. However, the company’s year-over-year (or YoY) gross merchandising volumes growth was sluggish compared to fiscal 3Q15.

For the recent quarter, GMV rose 23% YoY, which is down from 28% YoY in the previous quarter and a sharp YoY decline of 50% compared to the corresponding quarter last year. Alibaba’s rival JD.com (JD) has seen a GMV increase of 69% YoY while eBay’s (EBAY) GMV remained flat compared to last year.

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During the recent quarter, Alibaba mentioned that the weather in the last quarter was quite warm, and the temperature was unusually high. That led to a decline in the sale of clothing items with higher ASPs (average selling price), which ultimately created a negative impact on its GMV. However, the company observed that the clothing items have sold well during the last few weeks and that it should reap the benefits in this quarter.

Improved conversion rate

In the previous two quarters, Alibaba’s growth rate year-over-year from revenue surpassed the GMV growth rate. The company has made significant progress in its conversion rate, which stood at 3.0% in fiscal 3Q16 compared to 2.7% in the same quarter last year. The company uses the combined effect of both retail and media platforms to develop action-driven as well as interaction-driven advertisements. These ads not only eye-catching but also drive consumers back to its retail platform.

Amazon (AMZN) constitutes 9.1% of the PowerShares NASDAQ Internet Portfolio (PNQI).

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