Alibaba projects sharp growth thanks to Chinese middle class

Dive Brief:

Speaking at the company’s investors day in Hangzhou, China, Alibaba Group CFO Maggie Wu said on Thursday that the company is targeting revenue growth of between 45% and 49% for the current fiscal year. In the last fiscal year, Alibaba generated free-cash flow of $10 billion, which Wu said would be plowed back into the company to gain B2C market share. “This is a company that always invests for the longer term, for the future,” she said, according to an account of the meeting detailed on the company’s blog.
According to the company, the bullish growth expectations reflect the strength of the company’s core Chinese e-commerce business, continuing healthy spending by Chinese consumers and user growth, plus new revenue streams from Alibaba’s investments and initiatives that executives said Thursday are boosting its top and bottom lines.
Executives detailed Alibaba’s pivot from a company focused on commerce to one that is interacting with consumers on several levels, through its mobile applications and entertainment services and driven by big data. Because of that, the company in its reports will now refer to “annual active consumers” instead of “annual active buyers,” according to the blog post.

Dive Insight:

Alibaba's presentation to investors Thursday reflects the company's continuing faith in China’s growing middle class. While those consumers once headed to Alibaba’s marketplaces for basic household items and discounts, they’re now turning to them for higher end goods and demonstrating a willingness to pay more for them.

“For example, the purchase of high-end personal care products in May was nine times higher than that of the category average year-on-year. In beauty care, it was 2.59 times, and the number was 1.8 times for infant formula,” said Jet Jing, vice president of Alibaba e-commerce platform Tmall, according to the blog post. “So in all these categories, we are seeing a lot of speed and that attract the best players in the world.”

While much of Alibaba’s approach — including its focus on developing a consumer-focused ecosystem that includes entertainment and a cloud services unit that provides revenue and a resource for its sellers — sounds a lot like Amazon, the Chinese company seems also to be creating an e-commerce infrastructure that is more social and interactive beyond search. CEO Daniel Zhang told investors that the company has essentially grown into an economy unto itself, fueled by Chinese consumers’ comfort with interacting with retailers on mobile. Alibaba’s Taobao marketplace has “already accomplished a successful mobile transition,” with 85% transactions from mobile, according to a webcast of the presentation viewed by Retail Dive.

“Taobao… has transformed from a marketplace to a social commerce platform,” Zhang said. “Because of the social, because of the fun of discovery, because of the experience exploration… people want to come back again and again and spend so much time with us on our leading Taobao mobile app.”

That level of exploration and the return visits it engenders is possible on mobile in a way that was never true when e-commerce was based more squarely on desktop computers, a process aided by the collection and smart application of data, according to Zhang. “The heart of taboo today is intelligence,” he said via the webcast. “When we talk about big data and the value of cloud computing — all of our products and our applications are data driven … We can give the right person the right product in the right context.”