In many languages, one of the first words that babies utter is Baba, much to the delight of fathers the world over. But in investor parlance, the term is more likely to denote the all-conquering BABA, at least if the company behind the New York Stock Exchange ticker symbol has its way.
Talking to analysts about its fourth quarter results last week, Alibaba’s executive vice chairman, Joe Tsai, announced that $5 trillion in retail spending is now within the company’s reach. And that is just from China – Alibaba is also building out its global sales platform through a steady stream of acquisitions, which included Pakistani e-commerce player Daraz this week.
Alibaba’s latest results exceeded expectations again, demonstrating just how good it is at delivering returns. Fourth quarter revenue was up 60.5% year-on-year to Rmb61.93 billion ($9.73 billion), beating consensus forecasts by 5%. The Rmb16.1 billion in net profit also beat forecasts by 7%.
Alongside the sales numbers, Alibaba has been trying to show that it has stepped up its efforts to ensure fake goods are not sold on its platform. As part of its quarterly report, it announced that 105 brands have now joined the Alibaba Anti-Counterfeiting Alliance (AAC), up threefold from when it was founded in January 2017.
However, as Beijing News has discovered, there are still products on Alibaba that don’t always live up to the standards the company espouses. One recent example were pregnancy potions that purportedly help women to give birth to boys by ‘alkalinizing’ their bodies. When news of the advertisements began to circulate more widely, Alibaba apologised and said that it had removed them from its e-commerce platforms. Yet only a few days later, Beijing News reporters discovered the same goods were back on offer, prompting harsh comments from netizens.
“The market’s always led by demand so we have to acknowledge that these kind of repugnant sentiments exist,” said one. “But Alibaba should be cleaning this kind of thing up, not helping to facilitate it.”
In another public relations blow for the tech giant, Human Rights Watch published a report that suggested rampant gender discrimination in the Chinese workplace, including at leading private sector employers like Alibaba. Adverts specifying men-only candidates, or women who are “well-proportioned” were found to be commonplace. One Alibaba recruitment poster even featured a bevy of young women who were described as a source of “late night welfare”.
Once again, Alibaba found itself issuing an apology, although Human Rights Watch applauded the speed of its response. The organisation also noted that “Alibaba, Baidu, Huawei and Tencent appear to have deleted many of the ads we identified and publicly pledged that they would commit to gender equality in hiring.”
Despite the strong quarterly earnings Alibaba’s shares fell after the announcement, amid investor wariness about the risks of a major trade dispute between Beijing and Washington. Other analysts are worried that the company’s increasing investment in bricks-and-mortar retailing could compress margins.
In his earnings recap, Alibaba’s Tsai said that heavy investment in platforms like video site Youku would help to capture more discretionary spending from customers. Digital media and entertainment revenues were up 34% year-on-year to $840 million, while cloud revenues jumped 103% to $669 million. But Alibaba’s bigger bet is on its “new retail” concept or the bridging of the online-to-offline worlds through better logistics and data crunching.
Supporters say the first major test of the O2O strategy is how successfully Alibaba can integrate its logistics platform Cainiao with its Hema supermarket chain, incorporating last-mile fulfilment through the delivery service Ele.me.
Tsai says Alibaba will triumph from the “law of large numbers” through its “superior technology and operating excellence”. And over the medium term, the stock looks healthy enough. Having traded at just over $120 this time last year, BABA shares had risen to more than $195 by the middle of this week.
© ChinTell Ltd. All rights reserved.
Exclusively sponsored by HSBC.
The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.