Alibaba eyes ‘twin flywheels' of consumer and industrial internet for growth as new consumers shrink in China

Alibaba eyes ‘twin flywheels’ of consumer and industrial internet for growth as new consumers shrink in China

Alibaba Group Holding is speeding up its transformation from an online shopping site into a tech platform underpinned by both consumer and industrial internet businesses after paying a record fine of 18.2 billion yuan (US$2.82 billion) earlier this year to China’s antitrust authority, according to company executives and industry analysts.

Alibaba, owner of the South China Morning Post, is embracing both consumer and industrial internet businesses and venturing into new growth areas, said Daniel Zhang Yong, chairman and chief executive officer of the Hangzhou-based e-commerce giant.

“For our China retail marketplaces, a key strategic area for our incremental investments is to evolve from one super app of mobile Taobao into a multi-app product matrix,” Zhang said on a call with analysts on Tuesday after the company’s June quarter financial results were released.

The company’s bargain marketplace Taobao Deals is a key piece of the puzzle, with Alibaba seeing it as a bridge to less affluent consumer groups and rural areas, helping it to take on rival Pinduoduo.

“Its highly synergistic ecosystem enables it [Alibaba] to ramp up in lower-tier cities and local services,” Jefferies analyst Thomas Chong said in a report published on Tuesday. Penetration of small cities and towns will be a “key priority on user base expansion and wallet share gain”, he added.

Taobao Deals, with a user base of 190 million, added 10 million new users in the June quarter. Alibaba as a whole wants to hit one billion users this fiscal year, allowing it to serve nearly every Chinese internet user.

But as China’s e-commerce market becomes saturated, Alibaba is under pressure to generate more revenue per consumer to maintain business growth. Its revenue rose 34 per cent 205.7 billion yuan in its fiscal quarter ended June 30 while net income for the quarter fell 8 per cent year on year to 42.8 billion yuan.

The drop in net income was partly due to the company’s investment in local services and community group buying as it competes with on-demand services giant Meituan, another tech firm that is currently under China’s antitrust investigation.

Alibaba has merged its food delivery platform Ele.me, navigation service provider Amap and online travel booking platform Fliggy into one new unit, whose name in Chinese means to “fly high” when the first character of each service name is combined. Ele.me recorded strong growth of over 50 per cent year-over-year in the quarter ended June 30, and Alibaba wants to expand delivery services to non-food areas.

Meanwhile, the gross merchandise volume (GMV) of Alibaba’s community group buying service expanded 200 per cent from the previous quarter as the gross floor area of its regional distribution centres rose 260 per cent.

Growth at Alibaba Cloud remained strong despite the loss of a “top client” overseas. Year-on-year revenue growth at the unit in the June quarter slowed to 29 per cent from growth of 37 per cent in the previous quarter. Maggie Wu, Alibaba’s chief financial officer, said Cloud’s revenue growth would have been closer to 40 per cent without the one-off client loss. Wu said that the company’s client base remains diversified.

Alibaba was the world’s third-biggest infrastructure as a service (IaaS) public cloud service provider last year, behind Amazon Web Services (AWS) and Microsoft’s Azure, according to a June report by research firm Gartner.

In a letter to shareholders on July 27, Daniel Zhang said “our early and unwavering bet in cloud computing gave us the opportunity to be at the forefront of our generation, and be a company driven by the twin flywheels of the consumer and industrial internet.”

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