Brick and mortar retailers were already on a downward trajectory, even before COVID-19. The current pandemic has continued to expose the existing weaknesses, and accelerated the trend of e-commerce penetration around the globe, including relatively under penetrated categories such as grocery shopping. Despite that stay at home measures encouraged consumers to shift online, the change in consumer behaviour largely reflects a sustainable long-term growth trend for the retail industry. As a result, the clear winners are companies which can service any point of the supply chain, including those which provide the technology, market place and logistical services to serve consumers online.
Alibaba provides the technological infrastructure and marketing reach to help companies increase efficiency and reach their customers. China’s largest e-commerce retailer is a key beneficiary from the accelerated pace of digitalisation triggered by the COVID-19 pandemic.
Last week, Alibaba reported that its domestic core commerce business has recovered to pre-covid-19 levels following strong quarterly results for the period ending June 2020. Revenue grew by 34 per cent compared to the first quarter of 2019 as the e-commerce giant managed to add 16 million of annual active consumers on its China retail marketplace, over the quarter.
Moreover, Alibaba reported an increase of 28 million mobile monthly active users to reach a total of 874 million in June 2020. The strong quarterly returns are mainly driven by continued growth in users and consumers, as the company broadens its market share to less developed areas in China. The online retailer also improved higher purchase frequency over the quarter.
Alibaba’s earnings results reflect the key underlying retail trends currently shaping consumer and enterprise behaviour. Alibaba New Retail operations, which facilitate the digital transformation of brick-and-mortar retailing also surged over the quarter. The increase in quarterly revenue was primarily driven by contributions from the company’s own direct sales businesses, including Tmall Supermarket and Alibaba’s self-operated grocery retail chain, Freshippo. For the June 2020 quarter, online penetration of Freshippo’s gross merchandise value continued to be above 60 per cent.
The accelerated pace of digitalisation is also captured by the growth in the company’s cloud business. Compared to international cloud service providers, such as Microsoft Azure, Google Cloud and Amazon’s AWS, AliCloud recorded the strongest growth rate over the quarter. Alibaba managed to achieve a 59% growth compared to the same quarter of 2019, driven by increased revenue contributions from both public and hybrid cloud businesses.
Despite a challenging first three months, Alibaba managed to achieve its annual revenue guidance of 500 billion as at financial year end, last March. The strong recovery then onwards underscores its resilience during this economic downturn, as the e-commerce giant continues to benefit from the accelerated pace at which consumers and companies have expanded online.
Disclaimer: This article was issued by Rachel Meilak, CFA equity analyst at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.