Despite the growing concerns of an economic slowdown in China, the online retailer Alibaba Group Holding Ltd (NYSE:BABA) has been making significant progress and has actually reported growth in terms of Gross Merchandise Volume (GMV). The company recently held its annual sales event and reported a 60% increase in GMV, as compared to the preceding year. The company mainly operates in China, which is currently the largest online market in the world. Additionally, the lack of proper retail infrastructure and the unwillingness of international offline retailers to open branches in the country, makes for an ideal scenario for online retail.
Signs of Business Growth
Even though merchants were asked to launch their presale campaigns a little early this year, leading to more customers, the figures are still very encouraging. Additionally, this move also helped Alibaba speed up the transaction process, since most of the orders had already been place along with partial payments made in advance. The surprising part is that only 1 in 4 Chinese shoppers shops online. However, analysts expect that this number would soon change to 1 in 2 shoppers, by 2025. For Alibaba, this just means more customers and an increased rate of growth.
Given that Alibaba is one of the early players in China’s online retail market, the company is expected to hold its control over the market. Although several new retailers are trying to break into the lucrative Chinese market, they offer little competition to BABA. This is mainly due to the fact that Alibaba has already established itself as a reputable name in the market and it sells just about everything online. Additionally, the company finds itself in a strong financial position, giving it the option to utilize new technological tools, like drone delivery, to attract more customers. Newcomers on the other hand, might not have enough resources or the right amount of market share to do so.
3Q2015 Update
For the 3Q2015, the company reported a 32% increase in revenue. Unfortunately, this was slightly below the consensus estimate. Added to this, the company also reported significant growth in its mobile platform. As per the 3Q2015 report, the company experienced 183% year-over-year revenue growth in mobile GMV. A similar trend was also observed in the company’s cloud computing business, reporting a revenue increase of 128% on a year-over-year basis.
Added to the improved results during the 3Q2015, Alibaba has also been expanding its presence in different cities of the country. During the quarter, BABA had added 5 cities to its list of cities with same day delivery. However, large cities are not the only places where BABA is increasing its presence. During the quarter, the company also increased its presence in 4,000 rural villages, thereby increasing its customer outreach.
What Makes BABA so Lucrative?
However, the main selling point for Alibaba is that it serves as a gateway between the customers in China and international brand owners around the world. This way, the company eliminates the need for such brands to own physical stores in the region. Added to this, the service also ensures that counterfeited products are not sold through the platform and such merchants are never allowed to market their products on Alibaba again. More recently, the company has also opened offices in some European cities, so as to add brands from the EU to the platform.
Conclusion
Alibaba Group Holding Ltd (NYSE:BABA) is one of those companies that are a safe and sure bet for investors. Having control over an emerging market, which is comprised of the largest population in the world, the company should see consistent growth in the coming years. Furthermore, the company’s strategy to deliver authentic goods, to a large part of the country’s population, even to rural areas, tends to attract a number of international brands to the platform. However, the service is so successful mainly due to the lack of offline retail infrastructure in China, but that is not expected to change anytime soon.
