As discussed with Leland Miller on Monday, Alibaba is an interesting business, with a 
multi-faceted, global platform. The company proved on November 11th (known as Single’s Day in China) the global reach and popularity of the company, generating $14 billion dollars in revenue in a mere 24 hours. Alibaba integrated over 20,000 non-Chinese retailers for the event, and “cross-border gross merchandise volume (GMV) generated in the first two minutes this year exceed the total cross-border GMV generated during the entire 24 hour period last year” (Stifel Equity Research). The non-Chinese brands were a very important part of the event, as it gave the firm the opportunity to introduce Chinese consumers to a plethora of international products.
Alibaba’s CEO Jack Ma noted that the company is pushing to generate 50% of its sales from outside of China, noting that the Chinese economies slowdown could lead to decreasing user growth and sales. As Mr. Miller noted, the most intriguing part of the company’s business segments is its online bank (known as MYbank). The online banking service has no physical branches and is open 24/7. The executive chairman of MYbank stated that their mission was to “give affordable loans for small and micro enterprises, to provide banking services, not for the rich, but for the little guys” (techcrunch.com). The firm looks to give out $800,000 worth of loans in the coming year; however, it stills waits for government permission to begin extending credit from its $640 million of registered capital.
Alibaba, which has become a champion for Chinese economic progress, will be an interesting company to keep an eye on in the coming years. As the firm is registered on the New York Stock Exchange, it must publish all of its financials to the public, so it will be a relevant method of gauging Chinese consumer sentiment through the revenue breakdowns the company will have to list in its 10-Q’s and 10-K’s.
I find China’s dual approach to Alibaba problematic. Publicly championing a company as a marker of a consumption based economy on one hand while stifling that company’s attempts to reform banking on the other seems counterproductive.
It’s funny in my mind that Alibaba is now shifting its export base to outside markets now rather than a decade ago given that China’s growing middle class is becoming one of the greatest consuming demographs in the world. Perhaps this is a sign of just how restrictive China’s policies are on the company– or perhaps it’s a sign that Alibaba is looking to pursue its financing interests in areas with fewer restrictions.
Well, what is Alibaba’s business model? Unlike Amazon, they weren’t able to tap venture capital and so had to be profitable from Day One. What are their revenue streams? One thing is clear: unlike many US-oriented internet companies, advertising is not central. So do they take a cut from each payment? – I assume so, and perhaps at multiple points in the process. They surely charge retailers a fee, probably they earn a fee from handling payments, and maybe they get a margin from shipping companies…plus they are a quasi-bank, with deposits that they can try to find ways to lend. But what of the details? There are likely good sources out there.
This feeds into the question of overseas expansion. One possibility is that their business model will “port” to other markets, and they can beat Amazon on their home turf. Another is that they can disintermediate retail by allowing more direct channels between overseas purchasers and Chinese producers. If clothing stores in the US routinely have a 100+% markup [how else can you get 30% off sales as routine?], that should cover shipping costs and still leave money on the table to split between lower purchase prices and better seller margins. But there are also international finance aspects, if Alibaba ends up holding a lot of dollars at a time when Chinese savers have undiversified portfolios, well, capital flow liberalization [yuan depreciation] could earn them RMB10s of billions (if not RMB100s of billions) in profits.