Earnings   //   February 24, 2022

Alibaba bets on international growth as regulatory pressures grow

As Chinese regulatory pressures continue, Alibaba is leaning on its international services and platforms.

Alibaba divided its earnings into two segments for the first time in its fourth-quarter release this week: China commerce and international commerce. The former saw profits decline 20% year-over-year and only single-digit revenue growth, while the latter grew revenue 18% to 16.45 billion Yuan, or around $2.6 billion in the quarter.

In April last year, Alibaba was hit with a regulatory fine of $2.75 billion by China’s State Administration for Market Regulation for “abusing market dominance.” This January, the company was fined yet again. In turn, Alibaba is looking towards the less regulated waters of other countries in Asia and Europe, and supporting its international platforms and wholesale. But while there’s greater opportunity for growth, analysts warned that there’s also more competition abroad.

Growing international commerce

While Alibaba reported its smallest-ever revenue growth at just 10% year-over-year, international commerce provided a bright spot. The segment — which represents platforms like Lazada, AliExpress, Trendyol and Daraz — grew 18% in revenue. These marketplaces picked up 16 million new users in the quarter, for a total of 301 million.

Lazada — the company’s South East Asian e-commerce marketplace — in particular grew orders 52% year-over-year. The company’s Turkish marketplace, Tendyol, meanwhile grew orders 49%. “Our overseas investments will also help us gain more share in many international markets in the future,” CEO Daniel Zhang said.

Alibaba has been investing both time and capital in Lazada since its acquisition in 2016. Notably, Alibaba invested an additional $2 billion into the company in 2018. In 2019, Lazada also rolled out a suite of entertainment and livestream features similar to Alibaba’s China-focused Taobao.

“This is a good time for Alibaba to expand into Southeast Asia through Lazada,” Gartner research specialist Sarah Xu said. “Competition in China is fierce from other competitors like JD and the government’s zero COVID policy further dampen[ing] consumer spending… As omicron cases decline throughout the rest of the world, it’s a relatively good time to expand.”

Trendyol, meanwhile, became Turkey’s first decacorn after it hit a $16.5 billion valuation this August. With backing from Alibaba, Trendyol is less of a marketplace and more of a Turkish super app. In the playbook of other Alibaba ventures, Trendyol combines marketplace sales with instant delivery, grocery, a delivery network, a digital wallet platform and a second-hand peer-to-peer trading platform.

“We will continue to invest while monitoring the business progress in these strategic initiative areas,” Alibaba Chief Financial Officer Maggie Wu said.”There’s potential… [in] Lazada, and Trendyol.”

Cementing international logistics

International wholesale, meanwhile, grew 50% in transaction values in the quarter year-over-year. Under its wholesale business, Alibaba facilitates international transactions — generally between Chinese merchants and buyers from other countries — as well as logistics.

Cainiao is the subbrand in which Alibaba centers both its domestic and international logistics and the company has continued to invest in new Cainiao services and higher operational capacities for existing services this quarter.

“We are… focused on leveraging core capabilities that Alibaba has built over years in the supply chain, logistics, user engagement and channel development,” Zhang said. “We aim to grow a new digitalized social commerce infrastructure that offer consumers quality services and products with highly competitive price.”

In Russia, Spain, France and Poland, for example, customers can now pickup orders from Alibaba-branded lockers — similar to Amazon’s locker service. In Western Europe, Cainiao also opened four new self-operated sorting centers in the quarter to a total seven in the region. Moreover, the company invested further in preexisting logistics infrastructures like its eHubs, line-haul, sorting centers and last-mile network.

“Controlling everything from payment to last-mile delivery helps speed up the delivery time for Alibaba’s customers,” Xu said. “Cainiao has a global reach, establishing strong foundation for Alibaba.”

Further tensions loom

Though international expansion may provide short-term gains, analysts warn Alibaba’s troubles aren’t over. Neil Saunders, managing director of GlobalData Retail, said Alibaba has more room to expand in “less developed retail and digital markets.”

“It could also expand into more mature markets but one of the issues here is that it is late to the party and will have to compete against Amazon and other players which have a very solid position and have secured customer loyalty and integrated themselves into the lives of consumers,” Saunders said. The question is, what can Alibaba bring to the party that is different from what already exists?”

While most of Alibaba’s investments have been centered in Europe or Asia, the company is making moves to the West. Just last week, Cainiao leased a Boeing 747 aircraft from Atlas Air for a long-term charter agreement starting in the second quarter of the year. This is the sixth Alibaba aircraft dedicated to delivery and freight in the Americas.

However, Xu warned of the “challenges” of a U.S. expansion strategy.

“Geopolitical tensions have negatively affected American perceptions of China, and likewise Chinese perceptions of America,” said Xu. “With scrutiny from the U.S. federal government over TikTok last year and AliExpress recently being put on the government’s ‘notorious markets list,’ Alibaba faces challenges expanding into the U.S. and internationally in general.”

Saunders added that while regulatory pressures may be affecting Chinese business, international expansion might further the issue.

“The regulatory pressures won’t necessarily go away with internationalization, if anything China might put even more scrutiny on Alibaba if it starts doing more outside of China,” Saunders said.