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Alibaba Aims to Serve Over 1 Billion Shoppers Annually by 2024

By Leo Sun - Sep 27, 2019 at 11:48AM

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The e-commerce giant expects its customer base to keep growing at a 3% yearly rate over the next five years.

Alibaba ( BABA -0.12% ) recently told investors that it will serve over 1 billion annual active customers worldwide by the end of fiscal 2024. That target sounds lofty, but Alibaba already served about 860 million active consumers over the past year, including 730 million active shoppers on its Chinese platforms and roughly 130 million across its cross-border and overseas marketplaces.

This means that Alibaba expects its active consumer base to grow at a compound annual growth rate of about 3% over the next five years. That ongoing growth is impressive for a company that already controls over half of China's e-commerce market, according to eMarketer. It also indicates that it could become tougher for rivals like JD.com ( JD 4.17% ) and Pinduoduo ( PDD -1.58% ) to keep up.

Alibaba's corporate campus in Hangzhou.

Image source: Alibaba.

But can Alibaba really keep expanding its core commerce business, which generated 87% of its revenue last quarter? Let's study the three pillars of that business to find out.

1. Focusing on lower-tier cities in China

It might seem like Alibaba is running out of room to grow in China, but that's only true for developed top-tier cities like Beijing and Shanghai. Alibaba notes that 85% of Chinese shoppers in developed areas already use Alibaba's marketplaces, but that its penetration rate is only 40% in less-developed areas.

To tap into those underserved lower-income markets, Alibaba launched a flash-sale marketplace called Juhuasuan a few years ago, and it recently introduced a bargain-focused "Special Offer" version of Taobao's mobile app.

However, Alibaba already faces fierce competition in these lower-end markets from rivals like Pinduoduo, which lets shoppers team up with cheaper bulk orders, and JD, which recently launched a similar group purchase app called Jingxi. Pinduoduo and Jingxi both encourage shoppers to recruit other shoppers via Tencent's ( TCEHY 4.14% ) WeChat, so Alibaba could struggle to pry shoppers away from both apps.

2. Expanding overseas

Alibaba is primarily known as a Chinese e-commerce company, but it also serves overseas shoppers with AliExpress and Southeast Asian shoppers with Lazada.

AliExpress is the top e-commerce platform in Russia, according to Ecommerce News Europe, and it's expanding rapidly across Europe. It recently opened its first European brick-and-mortar AliExpress store in Madrid, which features over 1,000 products from more than 60 brands.

Lazada is the top e-commerce marketplace in most Southeast Asian markets. Its top rival, Sea Limited's Shopee, is consistently unprofitable and is struggling to keep pace with Lazada as Alibaba aggressively expands its services. Alibaba claimed that Lazada more than doubled its orders annually last quarter.

But that's not all. Alibaba is also expanding into Latin America and India via investments, it recently opened up its business-to-business marketplace Alibaba.com to U.S. merchants, and it acquired NetEase's Kaola to reinforce its position as the top cross-border marketplace for Chinese buyers. All these moves should boost Alibaba's overseas presence in the coming years.

Three tiny parcels on a laptop keyboard.

Image source: Getty Images.

3. Alipay and the future of smart retail

Alibaba owns a third of Ant Financial, the fintech company controlled by Alibaba's co-founder and former chairman, Jack Ma. Ant's Alipay, which processes payments for Alibaba's Chinese marketplaces, is one of the two top mobile payment platforms in China alongside Tencent's WeChat Pay.

The ongoing battle between Alipay and WeChat Pay is a major flashpoint in the ongoing ecosystem war between Alibaba and Tencent. Both companies are partnering with (or investing in) a growing list of brick-and-mortar retailers to tether more shoppers to their payment ecosystems. Alipay and WeChat also host "mini-apps" from third-party companies that are tethered to their payment services.

Alipay has about 900 million annual active users in China. Expanding that service into more brick-and-mortar stores, businesses, and mobile apps could help Alibaba accumulate more data on individual customers, which would fuel the development of better-crafted targeted shopping experiences across its marketplaces.

What this means for investors

Having a billion shoppers sounds impressive, but it's a realistic target for a company that already serves 860 million customers. Alibaba's expectation for its core commerce business to keep growing is encouraging since it's the tech giant's only profitable business and offsets the operating losses at its cloud, digital media, and other businesses. In short, the more Alibaba's core commerce unit grows, the more aggressively it can expand its ecosystem against rivals like Tencent.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

Alibaba Group Holding Limited Stock Quote
Alibaba Group Holding Limited
BABA
$127.37 (-0.12%) $0.16
Tencent Holdings Limited Stock Quote
Tencent Holdings Limited
TCEHY
$60.87 (4.14%) $2.42
JD.com, Inc. Stock Quote
JD.com, Inc.
JD
$87.62 (4.17%) $3.51
Pinduoduo Stock Quote
Pinduoduo
PDD
$65.45 (-1.58%) $-1.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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