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Alibaba's Killer O2O Strategy


  • The 63% growth rate of Alibaba's core commerce business is almost unfathomable, even given the strong tailwinds of China's rising consumer market and online penetration.
  • One element that is behind this is a clever strategy that blends online and offline retail to create a virtuous cycle.
  • In the process, Alibaba is embarking on a wholesale remake of the Chinese retail landscape.

We are looking at some bigger companies for our SHU portfolio, which we started at the end of September (it's up 18% since then), as it is fairly heavily skewed towards smaller companies:

And just by accident, we're stumbling onto a really big one and we were not aware what kind of opportunity it still contains.

We were investigating the difference in share performance between JD.com (JD), a company we hold in the SHU portfolio and Alibaba (NYSE:BABA), as the share prices have diverged strongly from August onwards:

And then we hit on the following really amazing graph:

This has alerted us to something quite phenomenal. The incredibly high revenue growth of Alibaba, and the fact that it has been re-accelerating since the beginning of last year.

We were impressed with JD.com being able to re-accelerate growth, but that is fairly modest compared to what Alibaba has been doing. Companies that are already large are not usually able to pull this off, let alone having 60%+ growth rates, this is simply phenomenal.

We have to say that we were not aware of the fact that Alibaba is growing considerably faster than JD.com due to this (from SA):

JD.com is gaining on Alibaba's e-commerce market share, according to an eMarketer report using data from Analysys International Enfodesk. In Q2, Alibaba's business-to-consumer Tmall e-commerce platform held a 51.3% sales share in the Chinese e-commerce retail market. JD.com was up to a 32.9% share, up from a 17.7% share in 2014. The gains largely came from the region's consumers moving away from consumer-to-consumer sales. JD.com's Q2 revenue was up 44% on the year to $14B but the company reported a net loss due to marketing expenses.

Indeed, as we showed in a previous article, JD.com has indeed grown faster if you start measuring

This article was written by

Shareholders Unite profile picture
Finding the next Roku while navigating the high-risk, high reward landscape

I'm a retired academic with three decades of experience in the financial markets.

Providing a marketplace service Shareholdersunite Portfolio

Finding the next Roku while navigating the high-risk, high reward landscape.

Looking to find small companies with multi-bagger potential whilst mitigating the risks through a portfolio approach.

Analyst’s Disclosure: I am/we are long BABA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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