Over $4.0 trillion in online retail sales
Alibaba’s (BABA) e-commerce penetration in China’s urban markets is almost peaking, and the company is now looking to rural China and internationally to drive future growth. The international e-commerce market presents an enormous revenue opportunity, not just for Alibaba but also for domestic rival JD.com (JD) and global peers such as Amazon.com (AMZN), eBay (EBAY), and Wal-Mart Stores (WMT).
Research firm eMarketer forecasts that global online retail sales will reach $4.1 trillion by 2020. Global online retails sales are estimated to have reached nearly $2.4 billion in 2017.
International retail sales jumped 93%
Alibaba has signaled that it would reserve no effort to deepen its international penetration to capitalize on the over $4.0 trillion in online retail spending. The pressure on the company’s profit margin in fiscal 3Q18 (December quarter), wherein operating profit margin declined to 31% from 39% one year earlier, was caused by the company investing a lot in expansion—including global expansion.
If you look at Alibaba’s 3Q18 results, there are signs that the company’s international efforts are beginning to pay off with consistent strong growth. The company’s international commerce retail business grew 93% YoY (year-over-year) to 4.7 billion yuan ($727 million) in 3Q18. The business grew 115% YoY in fiscal 2Q18 and 136% in fiscal 1Q18.
Lazada and AliExpress lifting Alibaba abroad
Alibaba’s investment in Southeast Asia, where it operates an online shopping platform called Lazada, drove the company’s international commerce retail gains in the latest quarter. Alibaba’s international push also seems to be benefiting from overseas demand for Chinese products.
The company said that its AliExpress marketplace was another driver of its international retail success in 3Q18. AliExpress is a platform that enables Chinese vendors to sell to overseas consumers.
In the next part of this series, we’ll take a look at Alibaba’s stock reaction to the company’s fiscal 3Q18 results.