Alibaba released its full-year financial results ending March 31 last week and the next sale of shares had some analysts perplexed as to why the company continues to lose value, despite seemingly good results.
After all, the quarterly loss of US $ 1.1 billion posted by the company was the result of a much antitrust charged by the Chinese authorities and the underlying performance appeared to be good, with a total profit for the year reaching US $ 14 billion (after the fine).
Other metrics also appear to be positive with a 41% increase in revenue, a 25% increase in EBITDA or an overrun of the 1 billion mark for the number of customers served throughout the year, for the first time in the company history.
The problem, however, is that Alibaba’s strong position is based almost entirely on its Chinese operations (from which approximately 80% of its customers come (more than 800 million)) and that the company is demonstrating which is struggling with its international expansion.
Although its international business (Lazada, AliExpress and Turkish Trendyol) increased the number of customers from 180 to 240 million over the last year (with Lazada itself recording a three-digit growth in orders received during the pandemic), revenue has grown for all by only 42%, compared to Shopee’s 178.3%.
It is likely that Lazada has surpassed AliExpress and Trendyol, but we do not know for sure, as no specific breakdown by company is reported. The gap between her and Shopee must also continue to grow over the past year.
This is a great pain for Alibaba, for which the expansion into neighboring Southeast Asia was a natural direction, but it is obviously losing to Singapore-based Sea Ltd, despite having started in a highly advantageous leadership position. of the market after the acquisition of Lazada in 2016, when Shopee was just in its first year of operation.
It seems to reinforce the observation that Chinese companies are badly off their basic domestic market, which adds to the pessimism about Alibaba’s future that drags on its valuation.
Since peaking in October 2020, the company has lost about a third of its market capitalization in just over six months, due to a mix of problems with the repression of the authorities. Chinese against the group of ants of Jack Ma and the consequent long disappearance of the adult. founder, who has not been seen in the spotlight since the Formiga’s IPO last year.
What does it mean for e-commerce in Southeast Asia?
It’s hard to imagine Alibaba giving up the regional market, but it looks like it’s out of reach for now. However, unless he can hire new leaders and invest heavily to respond to Shopee’s dominant position, it’s equally hard to imagine how he could turn his situation around.
It started as a market leader when Lazada ideally positioned itself as the only truly regional e-commerce platform five years ago, but Alibaba was defeated in its own game by a Singapore outpost.
Today, Sea Ltd. it is no longer a small business with a current market cap of US $ 130 billion. It is now a major corporation that can do this easily raise billions of dollars to continue its successful expansion.
Of course, Alibaba’s pockets are much deeper, as the entire group remains profitable unlike Sea Ltd., which recorded another annual loss in 2020 despite continued growth in orders, revenue and the base. of users.
Still, if money could make you successful, Lazada should dominate the market, but it clearly isn’t.
It is an enigma to which there is no solution. Ironically, the acquisition of Lazada for a meager $ 2 billion was still a remarkable deal, as the business is likely to be worth at least several times what it is today.
At the same time, however, Alibaba cannot agree to play a second violin in a market so close to its Chinese homeland, while constantly losing ground to Shopee, who walks away every year.
The goal of acquiring Lazada five years ago was to secure Alibaba’s dominance in a fragmented but rapidly growing Southeast Asian market. Not only has this not happened, but the company has ignored the rise of a powerful rival that has left it dead and continues to accelerate.
Wear War: Will it lead to an exit similar to Uber?
As explained in previous article, Southeast Asia’s e-commerce is still in a “war of attrition” with major players burning money despite growing demand.
On the one hand, Sea Ltd. lost $ 1.6 billion in this pandemic record year, despite a large increase in orders. It is true that Lazada is also bleeding money, although Alibaba will not reveal the exact figures.
In many ways, the situation is similar to that of the advisory sector until a few years ago, when the market was fragmented and in stiff competition, burning billions of dollars of investor money to see who comes out on top. .
At some point, a contender had to throw in the towel and sell his business; that’s how Uber kicked off Southeast Asia in 2018, ceding the region to Grab.
Clearly, the $ 1 billion loss is unsustainable for any company over an extended period of time, so it can lead to a similar consolidation in the marketplace. Since Alibaba has deeper pockets, it’s likely to be the one making the call.
The Chinese giant has two options:
A. Invest more money in Lazada in the coming years, hoping to spend and outperform Shopee’s competition, or
B. Simply acquire the company from Sea Ltd. and merge the two businesses.
A Lazada-Shopee joint venture would have no challenge in Southeast Asia, while both companies would complement each other in certain ways, with the former having a broad logistics infrastructure and experience, and the latter being a more popular and successful platform for independent suppliers.
Sea is in a more comfortable position because it is already gaining market share, so it will either come out regional leader (win) or be acquired for a lot of money by Alibaba (win).
At the moment, it doesn’t look like Jack Ma’s golden goose can succeed in direct competition and time will tell. As Shopee continues to grow, acquiring a stake in the business will become increasingly expensive.
Featured Image Credit: The Bangkok Post