“User growth, annual active consumers in China reached 780 million including 726 million of China retail marketplaces. In other words one out of every two Chinese are buying our platform,” Daniel Zhang, Executive Chairman and CEO of Alibaba Group Holding Limited said in the company’s earnings call for the first quarter of 2020. “On the retail side, online sales is no longer an option, but a necessity for the brick-and-mortars. We believe this is a new normal that will stay even after the pandemic is over. […] At the same time tensions between the U.S. and China have added another layer of uncertainty to the post-COVID-19 world. Despite the uncertainties in the macroeconomic and the geopolitical environment. There is one thing weak and certain, the world is moving toward digital-first and digital everything”

As a Jio executive pointed out while announcing JioMart’s rollout, Alibaba has already seen its fortunes grow in the wake of a disease outbreak — the SARS epidemic in 2003 led to a boom in e-commerce, with Alibaba launching Taobao, its competitor to eBay. This time, as history repeats itself with COVID-19, millions of Chinese people, afraid to break quarantine and shop in malls, did so on sites like Taobao instead, which today has 600 million monthly users.

China business bounces back

  • Back to business for China: Though China was the epicentre of the outbreak, most provinces have been able to open back up after rapidly expanding testing. “Since March, we have seen a healthy recovery in our China retail marketplaces. As of March 31, 2020 active consumers on our China retail marketplaces reached 726 million, a net increase of 15 million versus the previous quarter,” Zhang said.
  • Impact of COVID-19 on supply chains: AliExpress, which mostly targets customers outside China, was majorly affected in February and March due to supply chain disruptions. The company said the impact of international commerce, which accounts for 7% of its revenue, was unclear, as most other countries’ lockdowns only started around late March. Local consumer services decreased by 8%, but food delivery gross market value turned positive in April after China started loosening restrictions.
  • Online retail saw significant increases, may result in habitual change post pandemic too: Alibaba’s retail chain Freshippo saw 60% of its business come from online purchases, compared to 50% last year. Along with Taoxianda, its fresh grocery delivery platform, Freshippo saw a 100% year on year increase in sales. “We believe the consumer habit of buying fresh food and groceries online will continue after the pandemic and online and offline integration will drive the new retail model to the next stage of development,” Zhang said.
  • 846 million MAUs: Alibaba’s digital properties now have 846 million monthly active users, well over half the population of China, and the majority of the country’s 903.59 million internet users. “We have been investing to grow our new retail business in fresh food and grocery, Freshippo and Taoxianda, which have played an important role in supplying daily necessities to people impacted during the pandemic and it has become wildly popular among consumers,” Zhang said.
  • Alibaba Cloud grows 62%: Alibaba Cloud grew 62% on the back of increased digital traffic during the pandemic. “All industries including public sectors will choose to move their technology infrastructure to the cloud,” the company said. In response to a question on why cloud sales were growing less quickly for Alibaba than for Microsoft or Google, Zhang said, “I would say that in the U.S. and in the more developed markets the SaaS and the whole ecosystem developers are more mature already whereas in China that developer ecosystem is just starting to get going and Alibaba very much looks forward to partner with developers to jointly create a very robust ecosystem in China.”
  • Offering smart cloud services is the goal: Zhang said that Alibaba Cloud had more ambitions than just reducing storage costs for clients. “In Ali, the value proposition that we offer is cloud plus intelligence. So we’re not just about providing cloud services, it’s a combination of cloud plus intelligence. Now in different countries cloud services are defined differently, it’s true in China and internationally as well. There are different definitions, but to us, it’s just about shifting traffic onto the cloud to save costs, that’s kind of a low-value-added offering and that’s not really what Alibaba is focusing on higher value-added cloud-enabled offerings that can truly create value for clients in the sector.”
  • Impact of US Bill on listing on US stock exchange: “I want to address the recent bill passed by the U.S. Senate called The Holding Foreign Companies Accountable Act. The proposed legislation would essentially prohibit a foreign issuer from being listed on a U.S. Stock Exchange, if the U.S. Public Company Accounting Oversight Board, this is PCAOB, is enabled to inspect all the work papers of the issuers’ auditors for three consecutive years due to certain reasons. We will closely monitor the development of this bill and I think it’s important for investors to understand Alibaba’s practice and issues raised under this proposed legislation,” Wu said, adding that Alibaba’s financials are audited by PwC Hong Kong. “We will endeavor to comply with any legislation whose aim is to protect and bring transparency to investors who buy securities of U.S. stock exchanges.”
  • Demand for DingTalk, the collaboration tool,increases: DingTalk, Alibaba’s version of enterprise communication tools like Slack, was being used by 155 million people a day at its peak, though that number has gone down as more people start going back to work. In September 2019, DingTalk had 200 million registered users, so this is a significant increase.
  • 70% of growth for Taobao from “lower tier” cities: In response to an analyst question, Zhang said that 70% of new users for the company’s C2C business Taobao comes from smaller towns. “The fact is that we’ve penetrated all segments of the market from the high-end down to the low-end and the increase in the user base over the past year 70 million, 70% of that came from the lower-tier cities,” Zhang said.
  • Expanding presence in smaller towns with Alipay: “At the same time, we see significant potential for further growing our user base, the current figure for annual active consumers 780 million represents only 45% penetration of the population in lower-tier cities and in the rural areas of China, so there still is lots of room to grow in those regions and we intend to do so together with Alipay in driving a digitalization strategy in those areas that will convert people into consumers.”
  • Impact of influencer marketing is still uncertain: “In the long-term, how this trend [of influencer marketing] will play out comes down to whether the intrinsic commercial value in terms of having online influence with some [key opinion leaders (influencers)] to live streaming be fully captured in an efficient and effective way. If you have a one-off sales event with a celebrity influencer, you get a user to make a one-off purchase, fine, but the question is can you then keep that user in the long-term and continue to market to them and get the full value out of that relationship. So I think it’s important if you’re paying money to these online influencers or celebrities that you’re converting, in part that’s about supplanting existing channel costs and saving costs there. But more importantly, it’s about getting the new consumer into your ecosystem, so they can become a long-term consumer.”
  • Some growth offset by decrease in Russia revenue: “In the national retail revenue grew 8% to RMB5.4 billion. The increase was primarily due to the growth of Lazada and Trendyol and partially offset by the exclusion of revenue from AliExpress Russia which was no longer consolidated since October 2019. So we have a JV in Russia right now. Cainiao’s revenue reached RMB5 billion growing at 28% year-on-year,” Chief Financial Officer Maggie Wu said.
  • People are spending less on fashion, makeup because of the pandemic: On consumer spending shifts, Zhang said “Our FMCG categories in Tmall grow nearly like, I remember 40%, around 40%, which is a very strong indicator that people spent more on our platform in these categories. Well, because of the pandemic, people spent less on like apparel or like fashion because people wear face masks and they don’t even need this makeup.” As for spending power, Zhang said that since saving up is a common practice in China, overall buying has stayed strong.

Results

For the quarter ended March 31, 2020:

  • Revenue: US$16,144 million, 22% up year-over-year.
  • Annual active consumers on China retail marketplaces: 726 million, an increase of 15 million from December 31, 2019.
  • Mobile MAUs: 846 million in March 2020, an increase of 22 million over December 2019.
  • Income from operations: US$1,007 million, down 19% year-over-year, primarily due to the impact of the COVID-19 pandemic.

Press Release & Results | Transcript