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5 key facts of alibaba

Updated: Oct 8, 2018


Alibaba Group (BABA) recently announced their first quarter results for the financial year 2019. Revenues grew 61% compared to the last quarter while net profit grew by 34%. The results shows that BABA as a company is even more profitable today compared to last year. However, after announcing the news, share price plunged by more than 6%. In fact, the stock price has been falling from a high of $210 to below $165. That’s a more than $45 or 20% loss. The common saying is to buy the stock when it is low and sell it off when it is high. But will you buy Alibaba?


Here are 5 key facts you need to know before you purchase:


1. ALIBABA’S BUSINESS MODEL

Based on common knowledge, everyone knows that Alibaba by their E-commerce platform, Taobao, a place where people buy and sell different products and services. According to the chart below, we can see that Alibaba’s E-commerce platforms are very profitable compared to their other business units. But one thing you probably do not know, Alibaba does not make money by selling to customers any products!

If that’s the case, then how does the company generate income from its E-commerce platforms? Here’s how:


Their fundamental Core Commerce Operations activities consists of


a) Marketing services : Merchants would bid for keywords and listing display locations through an online bidding system and other marketing services to help boost brand or product presence among their consumers.


b) Commissions on transactions: Alibaba takes a commission of 0.3% to 5% on transaction value depending on the product category.


c) China Commerce Wholesale: Generate revenues through membership programs and customer management services.


To summarize, Alibaba is more of an advertising company for merchants doing business on their platforms. To help you understand, imagine when you search for something on Taobao. The item that shows up on the first few pages tend to be the ones found and bought by customers. To be on the first few pages, merchant pays a lot of money to Alibaba!


2. aLIBABA’S CURRENT MARKET SHARE

In 2015, Alibaba held 81.5% of market share in China which however dropped to 58.2% in 2018.Why? It is because of fierce competition in the ecommerce industry in China.


For example, their closest competitor, JD.com are currently forming partnerships with big names in Tech and retail giants like Tencent, Wal-Mart and even Starbucks to push down Ali Baba for being number 1. JD.com is also teaming up with Japan's Yamato Group which gives them an edge against their competitors to expand their shipments for logistics network to Japan, Europe as well as Southeast Asia.


Even though, Alibaba faces competition within the industry, they still are able remain on the top place in the ecommerce market in China.

3. the Cainiao Network


Last year Single’s Day, Alibaba Gross Merchandise Volume ( GMV ) totalled $1 billion within 2 minutes and surpass $7.5 billion by 40 minutes. The first delivery was made 12 minutes after midnight. But Alibaba does not own any delivery trucks to deliver those parcels! How then is Alibaba able to deliver so many parcels in limited time? The answer in the Cainiao Network – but what is it?


Cainiao Network Technology Company Limited (Cainiao ) was created by Alibaba and a group of logistic companies where Alibaba is the major shareholder controlling 51%. Alibaba’s vision for Cainiao Network is to construct a “China Smart Logistics Network (CSN)” as a platform for all ecommerce companies within the logistics chain to deliver within China for 24 hours and globally for 72 hours.


With the formation of Cainiao Network, Alibaba does not need to own the warehouses and the delivery trucks. By just combining all logistics company into one platform, it has full control over the entire ecommerce value chain from information, business, capital and logistics. Alibaba simply needs to provide the orders, and Cainiao will select the best logistics provider for the job! Once Cainiao Network takes off, it would speed up China’s economic growth, and lock their position as the most innovative global leader in the ecommerce market.

4. who Is The Key Person Behind Alibaba


Who is the key person behind Alibaba? Most people think its Jack Ma because he is the more popular one. Actually it isn’t so. Just recently, Jack Ma has announced his retirement from the Alibaba Group in order to give way to the younger generation to run the show. He has passed his reins to Alibaba Group’s CEO, Daniel Zhang Yong.


Who is Daniel Zhang Yong? He is one of the key individuals behind Alibaba’s development. Under his guidance, Alibaba has been having sustainable and consistent growth for 13 quarters back to back. His past track records are quite good as he was able to take his previous company, Shanda Interactive Entertainment Limited to be listed on NASDAQ within 2 years of his employment. In Alibaba, he held several positions within the company where he came up with many innovative ideas like transition towards mobile, launching Cainiao Network, as well as introducing Tmall International. Out of all his ideas, the biggest impact on sales is the creation of the Singles’ Day 11.11 mega shopping event.


The origin of Single’s Day came about the hallways of Nanjing University in 1993 as a day for students to celebrate their singlehood. The super annual event starts of at the stroke of midnight of 11th November runs the entire 24 hours a day inclusive of crazy discounts incorporated by Tmall. Consumers are able to purchase anything to everything on that day. This event generates billions dollars’ worth of sales in a day which is a combination of sales of the entire year!


It is very important for a company to hire the right individuals as they can either make or break the company.

5. The Reason of Success Behind Alibaba

Many who do not really know Alibaba merely thought of it as an E-commerce company selling products. Truthfully, Alibaba is a platform business. They only have one mission which is to make it convenient for anyone to do business anywhere anyhow anytime. Their main intention is create a platform for small enterprises and individuals to do business via Taobao, whereas the big players execute their business via Tmall in order to offer consumers a more diversified consumption choices.

Need to find a supplier for your products? Use 1688.com Need a marketplace to sell to? Taobao Need to do marketing? Can buy ads or bid for keywords on Taobao. Need a payment gateway? Alipay Need your items delivered? Cainiao Need a loan to expand your business? Use Ant Financing (By Ant Financial belonging to Alibaba). Need data to R&D new products? Customer reviews on Taobao Want to expand globally? Aliexpress.com

In general, Alibaba is not just about Taobao. Its not just about Alipay. Its an entire ecosystem – To make business easier to be done anywhere! Alibaba as a company has created many new millionaires in China. That is the value that they have brought to the Chinese people and right now, they are targeting the world.


So the key question right now – will you buy Alibaba?


Disclaimer: All facts and opinions presented are for educational purposes only. This is not a recommendation to buy or to sell. The author involved in the writing of this message has no vested interest in the companies. Please consult a professional for expert financial or other assistance or legal advice.

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