- 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:
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:
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, analysts estimate that 74% of all e-commerce will occur on mobile devices compared with 46% here in the U.S.
MAU growth + stickiness = perfection
As an example of the value of Alibaba's market leadership and MAU growth, take its core Taobao site. Taobao's consumer engagement and stickiness are among the best among e-commerce apps, consistently tracking above 40%. User stickiness equals Daily Active Users divided by Monthly Active Users. This is underpinned by company's continued focus on becoming the ultimate ecosystem for commerce - a goal they seem all but certain to achieve.
The company's comprehensive range of content enables engagement at different touch points and different customer life cycles. Even inside company's Taobao mobile application, users are surrounded by media and content. A few examples include headlines, streams, and videos. All designed to keep the user captive.
Alibaba's June 2017 Investor Day Presentation revealed just how powerful BABA's mobile strategies have been in engendering ecosystem stickiness. Few could have imagined just how useful Alibaba's ability to capitalize on its customers throughout the entire lifecycle. The more protracted consumers have been with its platform, the more money they spend on numerous product categories - it's that simple.
Source: Investor Day Presentation, 2017
Alibaba's management is focused on its vision to increase revenues per user. Beyond a point, it's imperative for companies to serve quality and varied content to their existing users to keep them engaged. Alibaba has fared strongly by offering a basket of content across different categories. Alibaba has an online video app like YouTube, a chat app like WhatsApp, a mobile browser, News and media websites and video subscription. All of this falls under the company's "Alibaba Economy" philosophy - a belief that its businesses can and should feed off each other with the end goal of becoming one of the world's largest economies.
The extent of their content domination is growing faster. Recently, BABA managed to get Netflix (NFLX) to distribute an Alibaba-produced show globally. The agreement marks the first Chinese web series shown to the global audience and could be the first example of what could be a very BIG trend.
What investors need to know
Someday, Alibaba's MAU growth will mature. Also, it remains to be seen if management will be able to acquire users, on a big enough scale outside their home market to achieve its long-term goal of 2 billion users. Either of these negatives would have a detrimental effect on BABA's growth profile.
However, in either of these adverse scenarios, Alibaba will not be done growing the top and bottom lines. Its record of increasing the "stickiness" of its portals within the broader Alibaba economy make it so revenue per user will continue to rise.
Jack Ma may have made the business-move of the century in creating a Chinese e-commerce portal at the dawn of the internet age. But that's just half the story - the other is Ma and his team's relentless drive to serve as many customers and their needs as efficiently as possible.
For investors, MAU is a crucial metric to watch every time the company reports results. It is not only an indicator of the past but the company's future strength as a business franchise.
This article was written by
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