How Much Will International Commerce Contribute To Alibaba’s Top-Line Growth In The Next Two Years?

by Trefis Team
Alibaba Group
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Alibaba (NYSE:BABA) has reported strong revenue growth across segments in recent years. While the company has continued to grow organically in most businesses in which it operates, acquisitions have also added to the company’s top line growth. In recent years, Alibaba has acquired Lazada to boost international commerce revenues (particularly international retail), online video streaming platform Youku Tudou for its digital media and entertainment segment, Cainiao for global logistics, Hema supermarkets to boost New Retail (domestic commerce), and most recently food delivery services.

We expect the trend to continue in the coming years, and forecast Alibaba to report 30-35% annual growth in revenues by the end of the decade, with international commerce revenues increasing at over 50% annually in the same period. We forecast net revenues to increase from $40 billion in FY’18 to nearly $70 billion by FY’20, with international commerce revenues increasing from $3.3 billion to $8.1 billion in the same period. Accordingly, the segment is expected to contribute around 16% of Alibaba’s overall revenue growth in the same period. We have summarized our expectations for Alibaba’s international commerce revenue growth through FY’19 and FY’20 on an interactive dashboard for Alibaba’s International Commerce segment. Below we take a look at key revenue drivers for this segment.

Factors Driving Segment Growth

Alibaba categorizes its international commerce revenues into international retail and international wholesale revenue streams. International wholesale includes revenues generated by sales on and from fees on membership and value added services provided by the company. International retail primarily includes revenues from sale of products on and Lazada. The company has a sizable presence in the e-commerce market in China, with a nearly 60% share of the domestic market. In addition, Alibaba also has a meaningful presence in international markets across Asia, Europe and Latin America.

Alibaba’s presence in retail e-commerce in Asia was further boosted by the addition of Singapore-based e-commerce business Lazada in 2016. Last year, the company increased its stake in Lazada from 51% to 83%. The Lazada acquisition gives Alibaba access to a huge potential customer base of 560 million, of which the total number of internet users currently stand at 200 million. Moreover, there is no clear market leader in the e-commerce space in the region currently. Similarly, Alibaba has invested around $200 million in Indian e-commerce company Snapdeal in 2015 and another $200 million in another Indian e-commerce company PayTM in 2017. India is going to be a key market for all large players given that Amazon (NASDAQ:AMZN) has committed to invest $2 billion in India and Walmart (NYSE:WMT) acquired a majority stake in Flipkart for $16 billion earlier this year.

As a result of Alibaba’s efforts to expand its retail business across international markets, the company’s international retail revenues rocketed from $340 million in FY’16 to $2.3 billion in FY’18. We expect the company to report high double digit growth through FY’19 and FY’20 with revenues reaching over $6.5 billion by FY’20. On the other hand, international wholesale revenues have grown at around 10% annually in recent years. We expect this trend to continue, with revenues expected to increase from $1.1 billion in FY’18 to $1.4 billion by FY’20. As a result, we forecast combined international commerce revenues to increase at just over 50% annually from $3.3 billion in FY’18 to just over $8 billion by FY’20. If you disagree with our forecasts, you can modify these figures on our interactive revenue contributor dashboard for Alibaba and come up with your own estimates. You can further use these figures in our valuation dashboard for Alibaba to calculate your fair price estimate for the company’s stock based on new estimates.

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