Earnings   //   August 20, 2020

Despite political tensions, Alibaba’s international expansion is paying off

Even amid mounting pressures with the U.S., Chinese e-commerce giant Alibaba is still in hyper-growth.

The company has been pushing to expand internationally over the past year, introducing new features especially aimed at U.S.-based sellers. Most recently, this summer, it announced a program for small-to-medium-sized businesses (SMBs) to buy and sell goods in the B-to-B space.

The rollout came at a crucial time for many struggling businesses, in which Alibaba allowed them to set up flexible payment plans in which they get up to 60 days to pay for purchases, as well as get access to other merchant services. Now those efforts appear to have paid off. Aside from its domestic commerce business having “fully recovered” to pre-coronavirus levels, Alibaba’s international commerce retail revenue also grew by 26% year-over-year to $992 million, according to its latest earnings report.

Overall, the company reported a net income of CNY 47.59 billion ($6.74 billion), with its revenue having grown at a 34% rate year-over year. Alibaba’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) also exceeded initial projections of CNY 45.23 billion ($6.54 billion), hitting CNY 51.04 billion ($7.38 billion). Meanwhile, international commerce wholesale grew by 43% year-over-year, to $454 million.

During the earnings call with shareholders, CEO Daniel Zhang said that the company currently faces “uncertainties” due to increased tensions between the U.S. and Chinese government. The statement refers to the recent targeting by the Trump administration of China-based tech and retail companies, such as the plan to ban TikTok.

“We’re closely monitoring the latest shift in U.S. government policies towards Chinese companies, which is a very fluid situation,” Zhang said during the call. The company is “assessing the situation” and any potential impact of any cross-border bans, with Zhang pledging to comply with any necessary new regulations.

Zhang went on to say that Alibaba’s primary focus in the U.S. is to support American brands and retailers, including small businesses and farmers, sell goods to consumers and trade partners in China and other global markets.

Tony Ren, founder of Ascential-owned data analysis company Yimian, told Modern Retail that there is no doubt Alibaba is one of the top winners in the coronavirus era. “Alibaba as a whole is proving to be a relentless competitor across multiple categories,” he said. 

He noted that over the past few months, Alibaba has cemented its position in the West by rolling out measures to help international merchants list and grow products on its Tmall. Ren also pointed to its efforts “once the pandemic was under control in China,” in which Alibaba pushed on with retail events, such as its 6.18 mid-year shopping festival and “New China Cool 2020” even, aimed at developing new products with Western brands. 

Ascential forecasts Alibaba’s U.S. business to grow at a CAGR of 8.5% between this year and 2025, adding $2.2 billion in sales. Alibaba as a whole, taking into account all its global operations, is set to grow at a CAGR of 12.9% between 2020 and 2025, adding $556.4 billion in sales. 

This slower U.S. growth rate can be attributed to the fact that Alibaba has local leaders to contend with here, such as Amazon and Walmart, Ren explained. These factors are also what’s given it a lower level of awareness among merchants and consumers, compared to its domestic Asian markets. 

But despite its huge success on its own continent, the company still has a lot of ground to cover as the pandemic rages on around the globe, Ren said. This is especially true given the ongoing health crisis and geopolitical issues between its home nation and Western markets.

As Ren put it, “the retailer must be prepared for numerous spikes across [the Asia-Pacific region] that could threaten its long term growth.”