Alibaba released its financial results for the full year ending March 31 last week and the ensuing sell-off of the stock has left some analysts puzzled as to why the company continues to lose value, despite apparently good results.
After all, the quarterly loss of US $ 1.1 billion the company recorded was the result of an anti-monopoly fine imposed by the Chinese authorities and the underlying performance looked good, the total profit for the year. reaching approximately US $ 14 billion (after the fine).
Other parameters also seem positive with a 41% increase in turnover, a 25% increase in EBITDA or the crossing of the milestone of one billion customers served throughout the year, for the first time. in the history of the company.
The problem, however, is that Alibaba’s strong position is based almost entirely on its Chinese operations – where about 80% of its customers (or over 800 million) come from – and the company is clearly struggling with its expansion. international.
While its international operations (Lazada, AliExpress and Turkish Trendyol) have increased the number of customers from 180 to 240 million over the past year (Lazada itself reporting triple-digit growth in orders received during the pandemic), overall revenue increased by just 42% versus 178.3% for Shopee.
Lazada is likely to have outperformed AliExpress and Trendyol, but we don’t know for sure as a specific breakdown by company is not being reported. The gap between him and Shopee must also have continued to widen over the past year.
This is a big deal for Alibaba, for whom expansion into neighboring Southeast Asia was a natural direction, but it is obviously losing out to Singapore-based Sea Ltd, although it started in a very advantageous position as market leader when acquiring Lazada in 2016, when Shopee was barely in its first year of operation.
This seems to reinforce the observation that Chinese companies are doing poorly outside their main home market, adding to pessimism about the future of Alibaba, which is driving its valuation down.
Since peaking in October 2020, the company has lost about a third of its market capitalization in just over six months, due to a mix of issues related to the Chinese authorities’ crackdown on Jack Ma’s Ant Group and the long subsequent disappearance of the Maverick. founder, who hasn’t been seen in the limelight since Ant’s IPO canceled last year.
What does this mean for e-commerce in Southeast Asia?
It’s hard to imagine Alibaba ditching the regional market, but it appears to be out of its reach at the moment. However, unless he can employ new leaders and invest heavily to meet Shopee’s dominance, it’s just as hard to imagine how he could turn the tide.
It started out as a market leader when Lazada was ideally positioned as the only truly regional e-commerce platform five years ago, but Alibaba was defeated at its own game by a Singaporean upstart.
Today, Sea Ltd. is no longer a small company with a current market capitalization of US $ 130 billion. It is now a large company that can easily raise billions of dollars to continue its successful expansion.
Of course, Alibaba’s pockets run much deeper as the whole group remains profitable unlike Sea Ltd., which recorded another annual loss in 2020 despite continued growth in orders, revenue and business base. users.
Nonetheless, if money could buy you success, Lazada should dominate the market – but it clearly isn’t.
It is a riddle to which there is no solution. Ironically, the acquisition of Lazada for a whopping US $ 2 billion remained a remarkable transaction, as the company is probably worth at least several times today.
At the same time, however, Alibaba cannot accept playing second fiddle in a market so close to its Chinese motherland while constantly losing ground to Shopee, who retires every year.
The goal of acquiring Lazada five years ago was to secure Alibaba’s dominance in a fragmented but rapidly growing Southeast Asian market. Not only did that not happen, the company ignored the rise of a powerful challenger who left him for dead and continues to ramp up.
War of attrition: will it lead to an Uber-style exit?
As explained in a previous article, e-commerce in Southeast Asia is still in a “war of attrition” with major players burning money despite skyrocketing demand.
On the one hand, Sea Ltd. lost US $ 1.6 billion in this record-breaking pandemic year, despite a huge increase in orders. Lazada is certain to be bleeding money as well, although Alibaba is not disclosing the exact numbers.
In many ways, the situation is similar to that of the ridesharing industry until a few years ago, when the market was fragmented and engaged in fierce competition, spending billions of dollars of investor money to see who came out. . up.
At one point, a candidate had to throw in the towel and sell their business – that’s how Uber kicked out of Southeast Asia in 2018, ceding the region to Grab.
It is clear that losses of $ 1 billion are not sustainable for any company over an extended period of time, so it could very well lead to similar consolidation in the market. Given that Alibaba has deeper pockets, this is likely the one to make the call.
The Chinese giant has two options:
A. Dump more money into Lazada in the years to come, hoping to spend more and outperform Shopee, or
B. Simply acquire the company from Sea Ltd. and merge the two companies.
A Lazada-Shopee joint venture would have no challengers in Southeast Asia, while the two companies would complement each other in certain ways – the former having extensive logistics infrastructure and expertise, and the latter being a more platform. popular and more successful for independent vendors.
Sea is in a more comfortable position as it is already gaining market share, so it will either emerge as a regional leader (win) or be bought out for a lot of money by Alibaba (win).
As of right now, it doesn’t look like Jack Ma’s Golden Goose can be successful in head-to-head competition and time is against it. As Shopee continues to grow, taking a stake in the business will become more and more expensive.
Featured Image Credit: The Bangkok Post
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