Singles’ Day 2017 Highlights Alibaba’s Intent To Become Global Leader

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Alibaba (NYSE:BABA) had yet another record breaking Singles’ Day on Saturday, reporting sales of over RMB 168 billion ($25.3 billion), which was over 40% higher than the Singles’ Day last year. To put the magnitude of this figure in perspective, take a look at the table below and note that the total sales on November 11 across Alibaba’s websites and apps was more than the total e-commerce sales in some countries in an entire year.

Below we look at some interesting numbers for Alibaba’s Singles’ Day shopping festival this year, how Alibaba has made it into such a successful event and how it compares to its American counterparts. We have a $136 price estimate for Alibaba, which is around 20% lower than the current market price. Alibaba’s stock price has risen from around $90 at the beginning of the year to over $180 currently following successive quarters of strong results and robust guidance for future quarters.

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Increasing Relevance of Singles’ Day

Back in 2009, Alibaba started the first Singles’ Day shopping festival along the lines of Black Friday and Cyber Monday, with discounts and deals targeting primarily middle class and price sensitive buyers. Over the years, it has snowballed into much more prominent event, somewhat reflecting the growth in China’s retail e-commerce space through this decade. It is interesting to note that China’s total e-commerce market (which stood at around $1 trillion in 2016), was two and a half times the $400 billion U.S. e-commerce market in 2016. Similarly, the combined sales in the U.S. on Cyber Monday and Black Friday for all websites and apps combined stood at around $6.8 billion last year, which was much lower than Alibaba’s Singles’ Day sales last year ($18 billion).

Furthermore, Singles’ Day sales have increasingly become more meaningful to Alibaba over the years, as shown above. In 2014, the total sales (or GMV) on Singles’ Day made up around 2.5% of the total retail GMV handled by Alibaba through the calendar year. This has consistently improved to an estimated 3.7% of total retail GMV this year.

Given the increasing popularity of the offers and deals on Singles’ Day, Alibaba rebranded it to “11.11 Global Shopping Festival” this year. Going forward, Alibaba could gain traction on its international commerce platforms as well.

Mobile Drives Growth

Alibaba’s core e-commerce business in China has been a strong performing stream for the company in recent years. Revenues in the segment have grown due to an increase in the total number of buyers as well as the average spend per buyer. The increase in the number of buyers is attributable to the increasing smartphone and internet penetration in China, with many retail purchases happening through Alibaba’s smartphone apps for websites Taobao and Tmall. The total number of mobile MAUs (monthly active users) was up to 549 million users by the end of the September quarter, driving much of the e-commerce sales for Alibaba.

This trend has been evident in Singles’ Day sales for Alibaba over the years, as shown above. Mobile sales contributed 90% of the sales this year, up from 82% in 2016 and 69% in 2015. Comparatively, mobiles sales on Black Friday in the U.S. were only at around 35% through 2015 and 2016.

Does Amazon Still Have The Edge?

Amazon is the dominant e-commerce player in a (relatively) smaller North American e-commerce market and handles a lower GMV than Alibaba. Despite that, it clearly has the edge over Alibaba for now. Firstly, Amazon’s cloud computing business (AWS) is a few years ahead of Alibaba Cloud in terms of profitability and scale. Alibaba Cloud still operates at a loss, which could continue in the near term. On the e-commerce front, Amazon charges a higher average commission rate on sales and a higher marketing fee to sellers compared to Alibaba. Consequently, Amazon generates higher revenues on a lower GMV compared to Alibaba. The range of offerings on Amazon – from fulfillment services, single day deliveries to integrated platforms such as grocery and fresh food delivery – remains key to its brand value and identity. However, Alibaba has shown interest in the grocery space for years, with the company introducing its Hema supermarkets and Intime department stores this year. Furthermore, with the Cainao delivery and logistics business under its belt, Alibaba is in a strong position to challenge Amazon to be the global leader. A clear example of this was Singles’ Day 2017, when the first shipment of the day was just over 12 minutes after it was purchased at midnight. This is no easy feat, given that the company was handling 325,000 orders per second at peak in the first hour of going live, with Alibaba managing to sell goods worth $8.2 billion in the first hour.

You can modify the interactive charts in this article to gauge the impact changes in individual drivers for Alibaba can have on our price estimates for the company.

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