So, Alibaba is now a diversified tech/internet company that not only has the biggest e-commerce presence in China, but also leads the cloud computing commercialization there.
Alibaba separates its business into four categories:
Core commerce
Cloud computing
Digital media and entertainment
Innovation initiatives and others
And “Core commerce” could further be divided based on China/International, retail/wholesale, logistics and others.
China commerce retail
China commerce wholesale
International commerce retail
International commerce wholesale
Cainiao logistics services
Others
“China commerce retail” is where most of the Taobao and Tmall’s numbers are presented – $36.9 billion, two-thirds of Alibaba’s total revenue in fiscal year 2019 (ended on March 31, 2019).
The revenue is supported by the huge GMVs of these two platforms.
Consumers come to Taobao Marketplace to enjoy an engaging, personalized shopping experience, optimized by our big data analytics. Through highly relevant and engaging content and real-time updates from merchants, consumers can learn about products and new trends. They can also interact with each other and their favorite merchants and brands. With a broad offering of interactive features such as live broadcast, groups and short videos, Taobao Marketplace has become an established social commerce platform.
Taobao Marketplace is also the entry point to verticals, such as second-hand auctions, and online travel booking, which may also be accessed through their own independent mobile apps.
Merchants on Taobao Marketplace are primarily individuals and small businesses. Merchants can create storefronts and listings on Taobao Marketplace free of charge. The escrow payment services provided by Alipay are free of charge to consumers and merchants unless payment is funded through a credit product such as a credit card, in which case Alipay charges a fee to the merchant based on the related bank fees charged to Alipay. Taobao Marketplace merchants can purchase P4P and display marketing services to direct traffic to their storefronts. In addition, merchants can acquire additional traffic from third-party marketing affiliates. Taobao Marketplace merchants can also pay for advanced storefront software that helps to upgrade, decorate and manage their online storefronts.
The revenue model of our China commerce retail business is primarily performance-based and is typically set by market-based bidding systems. Revenue from this model consists primarily of customer management revenue, commissions and other revenue.
Monetization Methods
Customer management. (and I will call it ads or marketing services)
Alibaba says a substantial majority of our China commerce retail revenue from customer management, which primarily consists of:
P4P marketing services , where merchants primarily bid for keywords through our online auction system that match product or service listings appearing in search or browser results on a cost-per-click, or CPC, basis. Whether and where the listing will be displayed, and the corresponding prices for such display are determined by the algorithm of Alibaba’s online auction system based on a number of factors with various weights and through a market-based bidding mechanism.
Display marketing services , where merchants bid for display positions at fixed prices or prices established by a market-based bidding system on a cost-per-thousand impression, or CPM, basis.In addition to the above-mentioned P4P marketing services and display marketing services directly provided on our marketplaces, Alibaba also provides such services through collaboration with other third-party marketing affiliates. These third parties are primarily third-party online media, such as search engines, news feeds and video entertainment websites. These third-party online media enter into agreements with Alibaba to connect their designated online resources to our online auction system so that the merchants’ listings or other marketing information can be displayed on those third-party online media resources. Revenue from P4P and display marketing services provided through third-party marketing affiliates represented 3%, 3% and 2% of Alibaba’s total revenue in fiscal years 2016, 2017 and 2018, respectively.
Taobaoke program , where Alibaba collaborate with shopping guide platforms, medium- and small-sized websites, individuals and other third parties, collectively “Taobaokes,” to offer marketing services. Taobaokes display the marketing information of merchants on their media which facilitate our merchants to market and transact. Merchants pay commissions to such Taobaokes based on a percentage of transaction value generated from users under the Taobaoke program. Commissions on Taobaoke are set by the merchants. Revenue from the Taobaoke program represented 3%, 3% and 3% of Alibaba’s total revenue in fiscal years 2016, 2017 and 2018, respectively.
Commissions on transactions. In addition to purchasing customer management services, merchants also pay a commission based on a percentage of transaction value generated on Tmall and certain other marketplaces. The commission percentages typically range from 0.3% to 5.0% depending on the product category.Commission revenue increased by 37% from RMB34,066 million in fiscal year 2017 to RMB46,525 million (US$7,417 million) in fiscal year 2018, primarily due to the strong growth in physical goods GMV on Tmall.
Other. Other revenue from our China commerce retail is primarily generated by our New Retail business, mainly Intime, Tmall Imports and Hema, and primarily consists of revenue from product sales, commissions on transactions and software service fees.
Let’s do some calculation:
2018
revenue (customer management) – 114,285 million RMB
take rate: 2.3710% (of Taobao + Tmall GMV)
revenue (commission) – 46,525 million RMB
take rate: 2.1832% (of Tmall GMV)
2019
revenue (customer management) – 145,684 million RMB
take rate: 2.5438% (of Taobao + Tmall GMV)
revenue (commission) – 61,847 million RMB
take rate: 2.3678% (of Tmall GMV)
The higher take rates are generally good – it shows Alibaba’s market power and the value of its platform.
However, it also means selling on Alibaba’s platforms is becoming more expensive.
Meanwhile, it’s worth noting that when people use e-commerce to do searches, it’s not good to search engines like Baidu.
It is the same across China and US, where Amazon is growing its ads revenue in a market Google and Facebook dominate.
Actually, the value of Alibaba blocking Baidu’s search on Taobao pages in 2008 is a hundreds-of-billion-dollar action. (this didn’t happen in the US)
It has been a well-known fact that the global smartphone market is maturing and the shipment volume has found its turn.
The decline is real and accelerating.
…first quarter of 2019 (1Q19) with shipment volumes down 6.6% year over year…
Smartphone vendors shipped a total of 310.8 million units in 1Q19, which marked the sixth consecutive quarter of decline. In 2018, smartphone shipments dropped 4.1% over 2017, which was inclusive of a first quarter that was down 3.5% – just half of what the market experienced in 1Q19.
While top performers are still trying to grab market shares (some go for higher ASP targeting market shares in terms of revenue; others go for value targeting market shares in terms of shipments), they have designed their way to grow upon/out of smartphones.
Apple will go for services. [Read more from a previous post]
Meanwhile, Xiaomi, long being tagged as “the Apple of China”, is aiming the IoTs.
I would like to say the IoT focus is making Xiaomi more unique than its phone business.
As of March 2018, we (Xiaomi) had over 100 million connected devices (excluding smartphones and laptops)
…the largest consumer IoT platform globally according to iResearch
In January 2019, Xiaomi announced taking a 0.48% stake in TV manufacturer TCL, deepening an existing alliance that saw the two work together to integrate Xiaomi’s operating system into TCL products. [Techcrunch]
Another number – MIUI MAU is constantly adding ~17-19 million each quarter.
17Q1
17Q2
17Q3
17Q4
18Q1
18Q2
18Q3
18Q4
19Q1
MIUI MAU (millions)
138.3
146.0
156.5
170.8
190.0
206.9
224.4
242.1
260.9
incremental (millions)
7.7
10.5
14.3
19.2
16.9
17.5
17.7
18.8
Overall speaking, I think the IoT revenue should be around 30% for 2019 and may stay between 35-40% in the future.
At the same time, geographically speaking, Xiaomi is one of those companies that are benefitted the most from India’s growth.
From Mogujie (NYSE: MOGU) to Ruhan (NASDAQ: RUHN) to Yunji (NASDAQ: YJ), a series of second-tier (in terms of size at least) Chinese e-commerce companies has filed with SEC and raised $66.5 million, $125 million, $121 million respectively (excluding any over-allotment option).
The interests were stirred by (at least) the capital market success of Pinduoduo.
In its IPO, Pinduoduo was valued at $23.8 billion including all outstanding share options, compared with a valuation of $15 billion following a funding round in April, 2018. (Reuters)
users comparison at PDD’s IPO vs. Taobao, JD | Source: Bloomberg, Jiguang
Mogu Inc. ended its New York debut at the same price as its initial public offering $14, after dipping as much as 15% during the day. [Caixing]
As of May 17, 2019, Mogu closed at $5.4 per ADS, down more than 61% from the IPO price of $14.
Ruhan, or Ruhhn, slipped 37% below its IPO price on the first day of trading following a $125 million NASDAQ offering. [AVCJ]
As of May 17, 2019, it closed at $4.25 per ADS, down more than 66% from the IPO price of $12.5.
Yunji, debuted this month, has maintained $0.01 above its IPO price of $11 as of May 17, 2019. Yunji’s valuation is more supported by its revenue (EV/revenue multiple is close to 1).
And a roundup of multiples at IPO, using an exchange ratio of 6.8
While Starbucks is probably the No.1 coffee brand in China, its position has constantly been challenged. Luckin Coffee, (briefly covered in a previous post) is cutting into the mass market with lower pricing.
Many people are eyeing on China’s growing coffee market, which will be huge and many are betting on the growth in average coffee consumption.
On the global capital market, Starbucks’ China push and Blue Bottle’s exciting/interesting movements (Jun 2015 $70 million series C; Sep 2017 acquired by Nestle, $425 million for ~68%) may as well push Chinese counter-parties to think about aggressive expansion or building boutique brands.
Listed here are 3 shops I visited recently. Will add more during the summer.
Costa is in direct competition with Starbucks, pricing its coffee at exactly the same level – grande latte @ ¥32.
% arabica, from Japan
% arabica @ the bund, Shanghai | Source: arabica.coffee
Started in 2014 in Kyoto, Japan, % arabica is a young brand. It opened the first store in China in Shanghai in Feb 2018 in a trendy (网红) way. It already has opened 4 store in Shanghai alone, including a roastery at the Bund (7 in mainland China and 4 in Hong Kong as of May 2019).
% arabica is a premium brand with latte price starting @ ¥35 (but in short size), @ ¥45 for a tall size (or a little bigger than tall.. cant’ tell exactly), @ ¥40 for tall ice latte.
Pricing is in line with (or a little lower than) boutique coffee shops. Americano @ ¥28 and latte @ ¥36 (¥38 for ice latte). There is only one size (tall); a fair amount of cups are served in reusable cups.
When Tesla said “Deliveries were approximately 63,000 vehicles, which was 110% more than the same quarter last year, but 31% less than last quarter”, NIO wanted to say something similar.
The 2019 Q1 deliveries number was approximately half of that in 2018 Q4. (Still a good job in ramping up production fast)
To compare in numbers:
Tesla deliveries is ~15.8x NIO’s in 2019 Q1, ~11.4x in 2018 Q4
Tesla’s automotive revenue in 2018 Q4 was $6.3 billion vs. NIO $0.5 billion: ~12.6x
Current valuation 8x ($40bn vs. $5bn)
NIO said ES6 (to start deliveries in June) should have more than 10,000 pre-orders before deliveries.
The mass production of Model 3 in 2018 H2 helped to improve the automotive sales gross margin in Q3 and Q4.
However, due to the price reduction in 2019 Q1, less absorption of fixed cost and more international deliveries, the automotive sales gross margin went back to the 18-19% region in 2019 Q1.
Though, Tesla reaffirmed its prior guidance of 360,000 to 400,000 vehicle deliveries in 2019, thanks to the confidence in Model 3.
China Sales
Although China (China and Europe mainly) sales in 2018 decreased compared to 2017, Tesla’s March performance in China is exceptional, with 9,273 in total (Model 3: 7515; Model X: 1490; Model S: 268)
Tesla Vehicles Sold in China 2019 Q1 | Source: Che Jing She, sohu.com
Many attributed the jump in sales to the “one time” price adjustment in China, including a ¥341 drop in the most expansive Model X (P100D), which then corrected by a general 3% increase.
Source: sohu.com
But the ongoing sales numbers is still in question.
In a previous post about Starbucks, we talked about its potential in China.
China’s coffee consumption will explode, even considering major cities alone. Younger generations will consume more coffee and they will represent an increasing proportion of the overall urban population.
China coffee consumption potential | Source: Starbucks 6/19 Presentation
The expansion in terms of coverage & number of stores is very impressive: 9 stores by the end of 2017 and 2,370 stores by the end of 2019Q1, although most (91.3 %) of them are pick-up stores (see above).
By comparison, in May 2018, Starbucks announced that it is planning to build nearly 3,000 new stores in mainland China over the next few years (from 3,300 in 2018Q1 to 6,000 before the end of 2022).
When all the fellow streaming platforms are adding their original content capacities, on April 11, the biggest original content provider Disney Group finalized the pricing ($6.99/month) of its own streaming platform, Disney+. And the official US launch date is later this year on November 12.
Disney+ pricing | Source: Disney investor day presentation
What we’re going to do with the Disney direct-to-consumer app or platform is, first of all, we’re going to launch it in late 2019. We’re doing that for 2 reasons. First of all, as we exit the Netflix output deal, we don’t get access to our theatrical release movies until the beginning of ’19. Secondly, we wanted time to actually develop and build up original programming for the platform.
Following the 2016 transaction, Disney made plans to test BAMTech’s delivery and support of streaming video and other digital products from Disney|ABC Television Group and ESPN.
ESPN+ as a test-out
Following the 2017 transaction, Disney said it would launch its ESPN-branded multi-sport video streaming service in early 2018.
What is different though, is that the content on ESPN+ is not a replacement of cable subscriptions (at least for now). ESPN Plus will not provide live access to ESPN’s main channels like ESPN and ESPN2 – you’ll still need a cable subscription to authenticate and watch. [TechCrunch]
new ESPN app and ESPN+ | Source: theverge.com
After all, ESPN is originally a cable business and sports are heavily rely on ads. ESPN+ is an ad-embedded streaming service (video ads).
Zoom is relatively young. It maintained high growth (2018 revenue of $331 million, 2017 revenue of $151 million) and is expected to grow fast.
Zoom is making a net profit in 2018 (~2.3% profit margin) and has maintained a high gross margin (~80%).
Source: Zoom SEC Filing. Author
Growth in customers – “As of January 31, 2017, 2018 and 2019, we had approximately 10,900, 25,800 and 50,800 customers with more than 10 employees.” they “represented 69%, 75% and 78% of revenue“
Market Size – In the US, business with
10-19 employees: 46,635
20-49 employees: 37,495
50-249 employees: 23,065
250 or more: 5,672
~113k in total, so Zoom has another 50% room to grow (will be harder and more costly)
market penetration and growth opportunity in large enterprise customers – “greater than 50% of the Fortune 500 had at least one paid Zoom host, compared to only 4% that contributed more than $100,000 of revenue. We believe this demonstrates that our product has already gained a foothold in many of the largest enterprises in the United States, and there is a large opportunity to expand within these large enterprise customers”
Revenue per large enterprise customer will grow, easily – “Some of our larger enterprise customers start with a single deployment of Zoom Meetings with one team, location or geography, before rolling out our platform throughout their organization.” “As of January 31, 2017, 2018 and 2019, we had 54, 143 and 344 customers that contributed more than $100,000 of revenue in each of their respective fiscal years”
Zoom’s future depends on its business outside video conferencing; it could grow into an essential infrastructure for business operations; it could do more than video conferencing, but also scheduling, internal messaging and other management tools.
