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For AliBaba, it is About Mobile Payments

Posted on Friday, Apr 21st 2017

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If there was any worry that the Chinese e-commerce player Alibaba (NYSE: BABA) would be impacted by the result of the Presidential election in the US, it has been laid to rest. Alibaba continues to outperform market expectations and deliver stellar growth. And now, it is shifting gears on its payment affiliate Ant Financial.

Alibaba’s Financials

Alibaba’s revenues for the third quarter grew an impressive 54% over the year to RMB 53.24 billion (~$7.7 billion), ahead of the market’s forecast of RMB 50.1 billion (~$7.3 billion). EPS for the quarter grew 43% to $2.57 billion, or $1 a share.

During the quarter, revenues from the core commerce section grew 45% to RMB 46.576 billion (~$6.708 billion). Cloud computing revenues increased 115% to RMB 1.764 billion (~$254 million). Revenue from digital media and entertainment increased 273% to RMB 4.063 billion (~$585 million) and revenue from innovation initiatives and others increased 61% to RMB 845 million (~$122 million).

Among key metrics, Mobile MAUs on its China retail marketplaces grew 43 million over the quarter to 493 million at the end of December. Annual active buyers on its China retail marketplaces grew 4 million to 443 million. The number of paying customers of its cloud computing business grew 18% to 765,000.

Alibaba’s Key Initiatives

Cloud computing is one of the big growth engines for the Alibaba. It has built up a large cloud ecosystem with over 60,000 reported developers and has more than 765,000 paying cloud customers. Overall, the cloud has 2.8 million total customers including marketplace merchants. Given Chinese regulations, it won’t be easy for foreign investors and businesses to achieve a worthwhile presence in the Chinese cloud market. Currently, large industry verticals and IT consumers in China are dominated by state-owned enterprises. Among other statistics, of the largest 100 web startups in China, 70 are using AliCloud. The service is operating at an annual run rate of more than $1 billion and analysts estimate that it will probably break even or turn profitable fairly soon. Alibaba believes that it could give Amazon some cause to worry even though it is currently the sixth biggest cloud vendor in the world. Analysts also estimate that Alibaba’s cloud opportunity is a $20 billion market and Alibaba is well geared to make AliCloud  grow into $65 billion-$70 billion in valuation over the next five years.

Within its marketplace initiative, Alibaba saw stellar performance in the Singles’ Day shopping extravaganza. During the November shopping day, Alibaba recorded $17.4 billion worth of gross merchandise volume on its platform compared with $14.3 billion in 2015. Compare that to the Black Friday and Cyber Monday sales of $2.74 billion and $3.07 billion, respectively in the US in 2016.

Additionally it continued to invest in international expansion and diversification. It realizes that while it may be a force to reckon with in China and has gained significant foothold in South East Asia, it still needs to make a mark in the European markets. As part of this effort, it is trying to improve its logistics operations within the region. Known as the New Silk Road, currently freight travels on train through China, Kazakhstan, Russia, Belarus, Poland, Germany, Belgium, and France, before reaching London 16 days later. To shorten this timeline, Alibaba is working on setting up warehouses along the train line to operate as its stock and delivery hubs.

Alibaba’s Mobile Payment Growth

But the biggest news for Alibaba recently has been the expansion of its mobile payment platform Ant Financials, formerly known as AliPay. AliBaba owns 33% stake in Ant Financial Services Group. It has more than 450 million annual active users compared with 180 million active users for Paypal.

Ant Financial recently announced its bid to acquire MoneyGram for $1.2 billion. The global remittance market is estimated to be worth $600 billion and MoneyGram is the second largest player in the market with a 5% share of the industry. MoneyGram has a network of 350,000 outlets in retail shops, post offices, and banks across 200 countries and it earns revenues in the form of commissions on transfers and exchange rate margins.

Whether its bid will win is still unknown, but at its bid price of $18.00 per share offers a 64% premium to MoneyGram’s average share price prior to the first offer for its business. It is also $200 million higher than the next competing bid. The merger will also need a blessing from US Committee on Foreign Investment and anti-trust clearances in the US. If the deal were to go through, it will give Ant Financials a big foothold in US, India, Mexico, and the Philippines markets.

While it awaits the decision, Ant Financial has reached a merger agreement with Southeast Asian payment platform helloPay. helloPay was set up by Southeast Asian e-commerce site Lazada and has strong presence in the Philippines, Singapore, and Malaysian markets. Alibaba already holds a controlling stake in Lazada to help expand its presence in southeastern Asia. Last month, Alibaba also picked up a 36% stake in India’s mobile payment platform Paytm for $177 million. The investment will help Alibaba establish a footprint in the country. India has been on Alibaba’s radar for a while now. It plans to establish its “triangle” of logistics, e-commerce, and payment platform in the country.

Alibaba’s stock is trading at 52-week high levels of $112.20 with a market capitalization of $280 billion. It had fallen to a 52-week low of $73.30 in June last year. Analysts estimate that given Alibaba’s cloud market growth and the continued advancements it makes into the mobile payments market through its affiliates, the stock is well poised to reach $140.

Photo Credit: hinglish Notes/Flickr.com

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