In this MarketFoolery podcast segment, host Chris Hill and Aaron Bush of Motley Fool Rule Breakers consider the latest numbers from this Chinese company that is now the largest retailer in the world. When you're already that huge, and you can still post mobile monthly active user growth of 24% to 530 million, you're doing something very right. But where does the company go from virtual ubiquity in its core markets, and how key is CEO Jack Ma's leadership in the company's next phase?
A full transcript follows the video.
This video was recorded on Aug. 17, 2017.
Chris Hill: Let's move on to Alibaba (BABA +2.85%), the e-commerce giant in China. First quarter profit came in north of $2 billion, and shares of Alibaba up around 4-5% today. This is what Jet.com wants to be when it grows up.
Aaron Bush: It's the antithesis of Wal-Mart right now.
Hill: It's not the antithesis. But if you're Wal-Mart, if you just keep piling up quarter after quarter of 60% online sales growth, eventually you're going to get to $2.1 billion. But, again, this is what Jet.com wants to be when it grows up.
Bush: Yeah. I felt really positive looking into this quarter. I'll just start by saying that Alibaba's mobile monthly active users, that metric was up 24% year-over-year to about 530 million. So, to frame that up, about 55% of China's population are internet users, that's about 750 million people. If you take out kids and such, you see that Alibaba is really at the point of ubiquity right now. That just builds a really powerful network effect, and because of that network effect, people just start to use Alibaba and their websites and services more and more. So, this quarter, you see exactly that. Revenue rose 56%, and most of those gains did come from the commercial operations, so, Tmall and Taobao. More big brands are jumping onto the platform. And naturally, because of that, consumers are engaging more with its apps. Gross merchandise volume is spiking. So, at the core, Alibaba is killing it, margins are scaling, cash flow is rising, they're getting the job done.
Hill: How key in your mind is Jack Ma to this company? He's clearly a tremendous business leader, but I don't know that I get the sense that he is as crucial to Alibaba right now -- obviously, he's gotten Alibaba to where it is -- but I don't get the sense that he is as crucial to Alibaba as, say, Jeff Bezos is to Amazon in this regard: I think if Jeff Bezos announced tomorrow that he was leaving as CEO, he was basically walking away from Amazon.com, I think that stock takes a much bigger hit than Alibaba takes if Jack Ma announces that he's walking away.
Bush: Probably. I think I agree with that. I still think that he is important for the reason that, similar to Amazon, Alibaba is starting to branch out of just pure retail. As they scale into these new ventures, having a more centralized person up top to manage all of that, allocate resources, decide strategically for the whole what to do, I actually think that position starts to be more important. Whether or not that's solely Jack Ma or not, or if it's more of a group of people, I don't really know. But I actually feel like it's going to be more important just from a resource allocation perspective. So, actually, what I think is particularly interesting about Alibaba is, similar to Amazon, the new things that they're venturing into. Just the name two or three that they highlighted this last quarter, for one, similar to Amazon, Alibaba Cloud is gaining more traction. The similar cloud services, cloud computing growth that we're seeing here and the U.S. --
Hill: Are they also calling it AWS for shorthand? Alibaba Web Services?
Bush: They could, they definitely could.
Hill: That would get confusing.
Bush: Yeah, a little bit. But right now, that's only 5% of the total business, but revenue doubled year over year for that. So, if that keeps up, that actually becomes a larger percent of the business, and the economics of it pour through to the bottom. They also acquired a company called Intime Retail Group, which is a leading department store and mall operator in China -- it is kind of odd if you think about it. I think what Alibaba is doing there could end up being a really interesting case study in how you connect the online and digital retail worlds to create the ultimate omnichannel experience. They're investing heavily into original content, like most big tech companies are here, like most big tech companies are there. They're trying to expand internationally, they're partnering with big companies like Marriott. So, they're doing a ton of stuff, and I guess my point here is, the core business is on fire. And those results are providing the resources to move in all of these new directions, similar to how we've seen Amazon here. I actually do think that makes leadership more important than it's been in the past.
Hill: Do you think there comes a point in the next, say, five years where they make a significant push into North America?
Bush: No, I don't think so. I think, more in Asia, there are several countries around there that are probably better targets to tap into. They would probably try to go after even Latin America or Australia before they tried to attack Amazon's home turf.
