Michael Norris is a TechNode contributor and Research and Strategy lead at AgencyChina. He owns stock in Meituan, mentioned in this article.

A version of this article originally appeared in the Dispatch, Michael’s monthly newsletter, on November 12.

Alibaba’s 2019 Investor Day came and went without any of the fanfare that marked Alibaba’s 20th-anniversary celebrations in September.

In fact, the company’s Investor Day was so low key that it hardly made a dent in the company’s share price, which was up 3% a week after the relevant announcements.

This year’s Investor Day, hosted by CEO Daniel Zhang and CFO Maggie Wu, consisted of 13 presentations covering marketplaces, logistics, retail, cloud, and financial services.

Taken together, the presentations showcased Alibaba’s tightening grip over consumers’ wallets. All indicators show Alibaba is the dominant e-commerce and payments player, and the operative question is what supports or hinders it converting that leadership into O2O dominance.

First, a few topline numbers.

Alibaba’s marketplaces now report 693 million annual active consumers. If that number’s accurate, it means that around 80% of China’s internet users are active on one or more of these platforms.

Around 20% (~140 million) of annual active consumers in Alibaba’s retail marketplaces spend more than RMB 10,000 ($1,400) per year. That’s 1.5 times the average monthly salary in China.

This user base, plus strong growth in other business units, means big bucks.

Alibaba has increased its revenue seven-fold over the last five years, which beats out digital peers in both the United States and China (see figure below).

And, even when you strip out proceeds from businesses acquired or consolidated in the last year, that momentum has continued over the last twelve months.

Here’s what I took away from Alibaba’s Investor Day.

None of the below should be construed as investment advice. Repeat, this is not investment advice. Do your homework before you invest in anything. There, I’ve made it clear.

  1. Alibaba’s retail marketplaces still have room to add users.
  2. Alibaba has still got a way to go to connect marketplace shoppers to other services in its ecosystem.
  3. Meituan’s not out of the woods yet, but its position looks strong versus Ali’s Ele.me.

Let’s rip into it.

Growth in the tank

China has around 850 million internet users, but not all of them have tried online shopping, according to the China Internet Network Information Center. In its August report, the center counted about three-quarters of mobile internet users as e-commerce users, and a little under half as on-demand food delivery users.

The folks at QuestMobile reckon that there’s a good spread of these potential e-commerce users across different city tiers—about 74 million in first- and second-tier cities, and 128 million in tiers three and below.

To put that into perspective, JD (China’s third-largest e-commerce player) has approximately 320 million active customers.

Additionally, my colleagues and I at AgencyChina have used demographic modeling to estimate that an additional 170 million Chinese internet users will come online in the next five years.

Added together, that means there’s potentially somewhere between 360 and 380 million online shoppers who are either on the cusp of shopping online or will be in the very near future. Although it’s got a fight ahead of it for these consumers’ minds and wallets, Alibaba’s core commerce growth still has plenty of runway left.

Connecting the ecosystem?

Alibaba’s ability to connect marketplace shoppers to other services in its ecosystem is a glass half-full or a glass half-empty proposition, depending on your perspective.

According to the reports, 25% of Alibaba’s annual active consumers are active on its on-demand food delivery platform Ele.me and lifestyle discovery service Koubei. A little less than half that proportion (12%) are paying subscribers to Youku, Ali’s digital media and entertainment platform.

At this point, if you’re the glass half-full type, you’d be pretty satisfied with that current level of penetration and optimistic that Alibaba will strengthen synergies across its ecosystem over time.

However, if you’re a little more pessimistic—like me—you’re looking at those figures and thinking that something’s not quite right. Two possible explanations come to mind:

  • Propositions outside Alibaba’s core commerce marketplaces and financial services platform aren’t quite strong enough to attract and retain core commerce customers; and/or
  • Integration between propositions isn’t strong enough

Consumer cross-over across the Alibaba ecosystem is something to keep an eye on going forward.

Local consumer struggles

Alibaba’s local services business unit encompasses on-demand food delivery platform Ele.me and lifestyle discovery directory Koubei, which merged last year.

Alibaba’s Investor Day presentation and subsequent quarterly earnings didn’t offer too much detail on how its local services business is doing, outside what it’s legally required to disclose.

From this, we can at least glean that Ele.me’s reported 245 million annual transacting users are significantly fewer than Meituan’s 423 million.

However, each player’s respective year-on-year transaction growth is roughly on par (Ali claims ~40% and Meituan claims ~30%).

That means Ele.me, even with its Koubei tie-up, is a firm second in the on-demand food and services sector.

That’s good news for Meituan’s share price, which has doubled since January this year. That signals the market is increasingly convinced about Meituan’s grip on the food delivery market and its ability to leverage its services marketplace to generate profit.

At the same time, the market is keen to know what Ali’s secondary listing in Hong Kong means for the services scrimmage.

Meituan’s stock is down 7% since news broke that Alibaba is eyeing up a late November listing to the tune of $15 billion. Presumably, some of these funds may be used to fuel a further “subsidy war” to pinch consumers and merchants from Meituan.

Alibaba shares surge 7% in Hong Kong IPO

To me, it underscores that for all the mess fast-flowing capital and loose valuations have caused, markets acknowledge that access to capital remains a key disruptive force.

As goes Ali…

Investors and markets have long seen Alibaba as a bellwether for China’s economy-at-large. However, Alibaba’s Investor Day presentation and subsequent quarterly earnings show that mental shortcut must be rejected. In fact, Alibaba’s marketplaces substantially outperform the “real economy.” China retail sales have grown only 8.2% year to date, and online sales 17%—while Ali’s (not entirely comparable) year-on-year core commerce revenue growth is a whopping 40%. Try chewing on that and see how the market looks.

Michael Norris is a TechNode contributor and Research and Strategy lead at AgencyChina. He focuses on how culture, technology, and digital trends affect industry and business. Michael is a TechNode Insider.

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