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Alibaba's 'Secret Sauce' For World Domination


  • Alibaba's monthly active user (MAU) count continues to trend upward.
  • Increased user count is just part of the story, Alibaba is also making more money per user.
  • Alibaba's ecosystem "stickiness" is a testament to just how powerful a business Jack Ma and his team have built.
  • Even when MAU-growth slows, Alibaba investors will own a fantastic business capable of growing revenue and profits for years to come.

In Western Reserve Strategies' last article covering Alibaba (NYSE:BABA), we investigated Alibaba Cloud Services' robust growth. And while the division will likely be a major driver of profits in the years ahead, today the company's core e-commerce business is where the action is.

In the 4th quarter ended December 31, 2017, Alibaba's core commerce revenue grew 57% year-on-year. BABA's China retail marketplaces (a sub-segment that includes 1688.com, AliExpress, Alibaba.com, Lazada.com) accounted for approximately 85% of the segment's revenue.

Notably, the growth in BABA's China retail marketplace benefitted from both user growth and an increase in average revenue per user:

Source: Alibaba.

This dynamic is Alibaba's secret sauce.

The ability to add more customers and then go on to make more money on this larger base is the goal of any business. As the company's Monthly Active Users (MAU) count (defined as the average number of unique users within the reporting period in question) continues to grow, so too will the company's bottom line.

Users just keep coming

Mobile e-commerce is even more prevalent in China than in the U.S. And Alibaba, and its retail properties have long been favorites of Chinese mobile shoppers. Monthly Mobile MAUs on Alibaba's China retail marketplaces reached 580 million in December 2017, an increase of 31 million over September 2017. Annual active users too showed healthy growth. Alibaba had 515 million Annual active users in the 12 months ended December 31, 2017.

As seen in the graph Alibaba's MAU has grown four-fold in the past four years:

Source: Alibaba.

User growth is the horse that will pull Alibaba's growth forward. As long as this metric continues to trend upward, investors can be assured that the future is bright. This also ensures that Alibaba's e-commerce properties will be there to benefit from an increasingly online-retail China. By 2020,

This article was written by

At Western Reserve Strategies, we don't just want to be right. We want to know why. Twitter: @WestResStrat

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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Comments (39)

China is not going to let US corporations dominate their landscape or worldwide internet: Amazon, Google, MSFT, Apple, etc. while pushing their own progress in the world aside. Agree with FY2F2 in that regard. It is one thing with coffee, burgers, etc. but international trade world wide is altogether a different ballgame. Amazon is already having problems in Europe. Bezos cannot have his cake and eat it to. Europe will not permit their retail to be throttled by the likes of Bezos.
It will be amusing when China's government takes over this company.
kevteo profile picture
So very true. Buy in advance of CDR listing
Baba is a must own stock. That being said, Jim Cramer likes Baba. That usually doesn’t work out so well. Selling Covered Calls since the IPO. It should grind higher in fits and spurts. Don’t get anxious but buy the dips of 10% or more and sell the big run ups. Let the short sellers be your friend. They’ll always knock it back down and you can buy again. Largest short interest of any large cap. That spells opportunity. To go against Jim Cramer, trade this stock don’t own it (reference to JC’s comments on just own Apple). If you can’t take the pain put your dough in a utility. Once Baba is listed as a CDR (Chinese Depository Receipt) in late 2018 or early 2019 this Year of the Dog stock will double to $400. This is turning into a national treasure with Xi blessing. The one thing the Chinese love is “saving face”. Baba is their beautiful face🤫🤫.
Hahaha. The JC curse.
Joseph Diamon profile picture
Alibaba (BABA) is our largest holding! We think this one has over 90% upside over the next 5-years! Check out our portfolio here: http://bit.ly/2G52esK

freddyfish123 profile picture
Today is a great buying day for baba!!!!
I rather have JD then Alibaba. JD lonnng!
it amazes me with all the good things going on with Alibaba that the company is so highly shorted
Some of the shorts might be hedges against a portfolio of Chinese equities. Not all short selling is speculative.
gotcha thanks
My major concern is that Alibaba’s financials are a big big fraud. They look so good on paper, that it seems very unrealistic...
Leyton House Aces profile picture
Then Amazon and Tesla are even bigger frauds.
g.dimit profile picture
Guys, please Don't count your Chickens before they Huch. LOL

Good Luck in your BABA Investing
already up 100% Many people were saying the same thing about Amazon for the last 1000 points
MyJourney profile picture
Bought early last year as soon as I believed 'the books' would be less manipulated (than many previous China companies) b/c the chinese government wanted to improve it's accounting image. Only bought 1/4 unit, now it has grown to 1/2 unit. Not selling!
Leyton House Aces profile picture
In 10 years, China will surpass US GDP and never look back. By 2050 it won't even be close.

It is foreseeable that BABA alone will have many more customers and clients than the *entire* US population!

Long BABA!
Long BABA - hope to retire rich!
Leyton House Aces profile picture
Me too!
I hope 1000$ in 10 years...
Will happen sooner
g.dimit profile picture
What is there, NOT TO LIKE BABA? Firing in ALL Cylinders, In Overdrive Using High Quality Octane
$230.00 The next 3-4 Months possible?

Buy BABA or the old Yahoo AABA to track BABA
BABA is a great place to park your money with uncertainty over US tariffs. BABA does little business with the US. Other countries punished by US tariffs will do increased business with China.
Because China has no tariffs???
Because the tariff situation in China is not about to change.
In the US it is, due to the republican leadership in government.
‫ארז לוי‬‎ profile picture
i really like to read your article, i really do because i holding baba since 90$.
but waht i don't understand is that if you so believe in this company why you dont buy?
The success of Alibaba is tragedy of human civilization and history as it will demonstrate to the next generation a copy cat can also succeed by plagiarism
Learning, copying and improving upon others is how the human civilisation progresses. Human history is littered with such examples.

Did you think Facebook invented social media, or google invented search, Uber is a copy of lyft, Microsoft snatched the keyboard and mouse OS idea from Steve Jobs and created windows.

Finance and business is about rewarding effective application of resources and efficient execution. This is why I believe that technology may start out to be global, ultimately and eventually it needs to be localised or the locals will build their own.
@Wilson. Are Usain Alibaba is a copycat because they do some other things to Amazon. If that is your statement then I guess all the car manufacturers are copycats to and the list could go on and on always figured it was just called competition
rickarolla profile picture
Don’t be ashamed to embrace the success of great innovators. Celebrate and emulate instead if you can. A tragedy is if some personal hang ups stop you from doing so
Basit Saliu profile picture
At the end of the day Private companies -mainly smaller businesses- are the backbone of any country economy. The Public market is becoming a scary place [option] for any Private company looking to make the jump even Amazon cannot takeover the World talk less of saying Alibaba.
davidrich77 profile picture
Alibaba are well positioned to do much of what Amazon are doing. The big difference is that in Asia Alibaba have access to half the worlds population and a fast growing GDP with a population of consumers and business that is highly adaptive to the digital/cloud marketplace. Its stock price doesn't yet reflect the true magnitude of the potential. Good for those of us who see the amazing opportunity this presents.
Charlie's Munger profile picture
Love BABA but own it for free thru SFTBY
If you own BABA for free you pay too much for the other assets 😉
‫ארז לוי‬‎ profile picture
every one thing that baba copy amazon....this is not true !
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