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Alibaba keeps growing strongly


Alibaba keeps growing strongly

Last week Alibaba, the world’s largest retailer and e-commerce company, reported financial results for the final quarter of its fiscal year 2019. Alibaba’s Chinese online retail platform continued to grow strongly and drove astounding performance.

In the full year to the end of March Alibaba generated RMB377 billion (almost US$60 billion) in revenues, up 51 per cent from the previous year. There were some acquisitions that helped the reported figures. Still, Alibaba’s online retail sites, Tmall and Taobao, drove key marketing and commissions revenues up 27 per cent and 33 per cent, respectively.

Alibaba FY 2019 revenue breakdown

Screen Shot 2019-05-21 at 11.20.14 am

Source: company filings

These shopping websites benefitted from both an increase in the amount of spending by consumers, up 19 per cent to RMB5.7 trillion (that’s closing in on US$1 trillion). This growth was driven by the addition of 100 million users of the sites in the last 12 months, to a total of 654 million annual active users. These users now spend over US$1,200 per year on average with Alibaba. Interestingly, 70 million of the new users came from tier three, four and five cities in China as Alibaba extends its reach beyond the largest metropoles.

Alibaba’s effective “take rate” on these purchases also gained. And while Alibaba’s clip has been increasing for years, it still only represents less than 4 per cent of the value of goods sold on its sites. We think it will continue to go higher for years to come.

Alibaba’s China commerce “take rate”

Screen Shot 2019-05-21 at 11.20.52 am

Source: Bernstein

Outside of Alibaba’s success in ecommerce, we were impressed with the rate of growth in its cloud computing business as well as the improvements that segment has made toward profitability. Alibaba’s cloud revenues totalled RMB25 billion for the year, representing 84 per cent growth. This is now a US$5 billion annual revenue run rate business, which makes it comparable in size to Amazon’s AWS (the world’s largest cloud provider), Microsoft’s Azure (number two) and Google Cloud. And after many years and many billions of dollars of investment, Alibaba’s cloud operations were just a touch off breakeven in the final quarter of the year.

This recent result reaffirmed our confidence in the strength of Alibaba’s online retail platform and the spectacular growth we think is achievable from its core business and other growth businesses.

The Montgomery Global Funds own shares in Alibaba. This article was prepared 20 May with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Alibaba you should seek financial advice.

Alibaba’s results reaffirmed our confidence in the company. In the full year to the end of March Alibaba generated revenues up 51% from the previous year. Click To Tweet

Christopher is a Portfolio Manager for the Montaka funds and the Montgomery Global funds. He joined MGIM at establishment in 2015.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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      • andrew ronan

        With the sheer amount of BS that comes out of China and the financial MSM, I’d be surprised if Kyle Bass and Jim Chanos were wrong on this, one would have to assume they have a high degree of insight regarding Chinese companies, I often wonder how the hell you guys decide what’s BS and what’s the good oil, you would have to be a forensic accountant to even interpret what they dish out, and have a lot of faith in their honesty, which is a big pill to swallow.

  1. andrew ronan

    Should we be worried about Chinese government intervention in shareholder ownership, rights etc due to trade war escalation?

  2. Hi Chris,
    Do u see any reason for the recent pull back in share price? And also do u see any value at their current price.

    • Hi Peter, I just wanted to come back and add a bit more to this. We definitely keep an eye on all the different view points in the market. When it comes to Alibaba we think the quality of the business and growth story is superior to any argument of scams and fraud. The cash flows, economics and oversight are sufficiently strong in our view. Thanks for your interest and query. Our internal processes ensure rigorous debate on all of these sorts of issues. All the best, Chris.

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