Boost to advertising business
Alibaba (BABA) closed 2018 with 636 million active consumers on its Chinese e-commerce platforms, up from 515 million at the end of 2017. In addition to driving retail sales, Alibaba’s growing consumer base has the hidden value of advertising. Alibaba provides advertising services where businesses and brands pay to promote their products on its platforms.
According to a report from eMarketer, Alibaba already dominates the digital advertising landscape in China. The expanding consumer base means Alibaba could just continue to tighten its grip on China’s lucrative advertising market. Spending on digital ads in China increased 26.5% to $62.6 billion in 2018, and there is more room for growth as digital currently represents 64.8% of China’s media ad spending, according to eMarketer estimates.
Alibaba is so interested in advertising dollars that the company has held talks about purchasing a stake in global advertising giant WPP PLC (WPP), Sky News reported last year. Tencent (TCEHY) was also involved in the talks.
Alibaba’s ambitions pose a threat to Baidu
Alibaba is expected to generate $27.3 billion in advertising revenue in 2019, and that is forecast to grow to $32.8 billion by 2020. But Alibaba’s growing advertising ambitions pose a huge threat to Baidu (BIDU), China’s top search engine company that depends on advertising for the vast majority of its revenue.
Amazon (AMZN) is another e-commerce company that is leveraging its extensive consumer reach to capture more advertising dollars. Revenue rose 95% year-over-year to $3.4 billion in Amazon’s unit that houses advertising operations.