Categories Analysis, Technology

Alibaba (BABA): Domestic consumption and cloud computing are key pillars of growth strategy

Alibaba expects its cloud business to turn profitable by the end of the current fiscal year

Shares of Alibaba Group (NYSE: BABA) recovered, gaining over 1% on Wednesday after the Chinese government drafted new regulations aimed at curbing internet monopolies. The Chinese ecommerce company reported strong results for the second quarter of 2021 last week with growth in its revenue and customer base. The stock has gained 27% since the beginning of this year.

Alibaba has seen revenue growth and increased engagement across its platforms along with growth in cloud computing. The company believes it is well positioned to capture the vast opportunity presented by digitalization in the current environment. Alibaba plans to focus on domestic consumption, cloud computing, data intelligence and globalization in order to drive growth in its business going forward.

Commerce

Alibaba saw strong growth across all its commerce platforms which drove a 29% increase in total core commerce revenue. The company’s efforts in expanding product offerings and improving user engagement helped drive customer acquisition across top-tier and lower-tier cities as well as growth in average consumer spending.

Alibaba reports Q2 2021 earnings results

Annual active customers on China retail marketplaces as of September 30 was 757 million, reflecting a quarterly net increase of 15 million. Alibaba’s Taobao Deals, which is aimed at value-conscious customers, played a significant role in bringing customers from lower-tier cities onto the company’s platform.    

Due to the COVID-19 pandemic, several consumers turned to online channels to order groceries and fresh foods and this trend, which is still ongoing, drove growth in Alibaba’s retail channels Freshippo and Taoxianda. For Freshippo, annual active customers as of Sept. 30 reached over 26 million.

The pandemic also accelerated digitalization across the restaurant and service industry and this has benefited Alibaba’s Ele.me platform. Ele.me expanded its delivery services beyond food to categories such as groceries and flowers and these efforts helped drive a 45% year-over-year increase in average daily number of paying customers during the second quarter.

Alibaba also saw solid growth in its businesses related to international markets. Its cross-border import platform Tmall Global saw a 37% year-over-year growth in GMV during the quarter while the number of brands and merchants on the platform grew double-digits.

Cloud computing

Another key area of focus is cloud computing. During the second quarter, revenues in cloud computing grew 60% compared to the prior year driven by strong demand across the Internet, retail and finance industries. More than half of the A-share listed companies are customers of Alibaba Cloud and their average spending rose 45% YoY during the quarter. Alibaba expects its cloud business to turn profitable by the end of the current fiscal year. The company sees cloud computing as a significant area of growth and it is increasing its investments in this space.

Click here to read the full transcript of Alibaba’s Q2 2021 earnings conference call

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