Singles Day on Nov. 11 is the biggest shopping day in China. That's why it wasn't surprising when Alibaba (NYSE:BABA), the country's top e-commerce player, recently announced that its gross merchandise volume (GMV) rose 26% annually to $38.4 billion during that 24-hour period.

That growth rate was impressive, but it marked a slowdown from its 27% growth in 2018 and represented its slowest growth since the shopping event started in 2009. Does that slowdown suggest that Alibaba's core commerce business is losing its momentum?

Alibaba's Singles Day event in 2018.

Image source: Alibaba.

Understanding Alibaba's core commerce business

Alibaba's core commerce business -- which includes Taobao, Tmall, AliExpress, Alibaba.com, Kaola, Lazada, and its Freshippo brick-and-mortar stores -- generated 85% of its revenue last quarter.

Its total revenue rose 40% annually to 101.22 billion yuan ($14.4 billion) last quarter as its operating profit grew 32% to 32.07 billion yuan ($4.56 billion). As Alibaba's only profitable business unit, the core commerce unit subsidizes the expansion of its unprofitable cloud, digital media, and innovation initiatives divisions.

Alibaba is gradually expanding the core commerce unit overseas and intends to reach 1 billion annual shoppers by 2024, but it still generates most of its revenue in China.

Its growth in China remains healthy -- mobile monthly active users (MAUs) across its Chinese retail marketplaces grew 18% annually to 785 million last quarter, as its annual active consumers rose 15% to 693 million. Tmall's GMV also grew 26% on robust sales of fast-moving consumer goods and consumer electronics.

But if we track the revenue growth and adjusted EBITDA margins of the core commerce unit over the past year, we'll notice that the business isn't immune to the economic slowdown in China.

Core commerce

Q2 2019

Q3 2019

Q4 2019

Q1 2020

Q2 2020

YOY revenue growth

56%

40%

54%

44%

40%

Adjusted EBITDA margin

41%

45%

35%

41%

38%

Source: Alibaba quarterly reports.

That revenue growth would likely have been even lower without the inclusion of Lazada, which serves Southeast Asia, and AliExpress, which lets overseas customers purchase goods from Chinese sellers.

More irons in the fire

Alibaba's slower Singles Day growth indicates that the core commerce unit's deceleration will continue, but the company still has a few tricks up its sleeve. First, Alibaba is launching more promotions for shoppers in China's second- and third-tier cities, who often prefer making group purchases on its discount rival Pinduoduo (NASDAQ:PDD). Gaining more lower-income shoppers in rural areas could offset its slower growth in maturing top-tier cities like Beijing and Shanghai.

Tiny parcels on a laptop keyboard.

Image source: Getty Images.

Second, Alibaba is encouraging its merchants to engage sellers via live video streams. It launched this year's Singles Day event with a live-streamed performance from Taylor Swift, followed by live-streamed marketing from over 1,000 brands. This strategy taps into the Chinese consumer's growing affinity toward live streaming platforms (as seen with the meteoric rise of ByteDance's TikTok), and mimics similar "social shopping" platforms like Mogu.

Lastly, Alibaba will continue expanding its e-commerce overseas and acquiring smaller platforms like NetEase's (NASDAQ:NTES) Kaola, which significantly strengthened its cross-border e-commerce platform. Those moves could significantly expand Alibaba's global shopper base and possibly offset slower purchases from individual customers.

Focus on the facts that matter

Investors shouldn't fret over the slight dip in Alibaba's Singles Day sales. It remains the 800-pound gorilla of China's e-commerce and cloud markets, and analysts expect its revenue and earnings to grow 34% and 29%, respectively, this year. Those are still stellar growth rates for a stock that trades at about 20 times forward earnings.

The Chinese economy is growing at its slowest rate in over two decades, but the growth of Alibaba's core commerce unit indicates that the average online shopper still has plenty of spending power. Alibaba can also throw other irons into the fire to keep its e-commerce engine chugging along for years to come.