As China's largest e-commerce and cloud infrastructure platform company, Alibaba (BABA 2.10%) isn't often associated with other countries. However, 301 million of Alibaba's 1.28 billion annual active consumers were actually located outside of China in its latest quarter, while its international commerce revenue accounted for nearly 7% of its top line.
Alibaba mainly serves other countries through AliExpress (a cross-border marketplace that helps Chinese merchants reach overseas buyers), the Southeast Asian marketplace Lazada, and the Turkish marketplace Trendyol. That overseas segment is significantly exposed to Russia's invasion of Ukraine since both countries are major markets for AliExpress.
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How much does AliExpress rely on Russia and Ukraine?
Alibaba lists Russia, the United States, Spain, France, and Brazil as AliExpress' leading markets. Its largest market has been Russia since 2013, and its Russian business grew so large that it eventually launched a new joint venture, AliExpress Russia, with three Russian investors in 2019.
After that deconsolidation, Alibaba classified AliExpress Russia as an investment instead of part of its international commerce business. But AliExpress' Chinese cross-border business -- which still ships products to Russian shoppers -- remains part of the international commerce segment.
AliExpress Russia claims it was the most visited e-commerce website and most downloaded shopping app in Russia in 2021 with 35 million monthly active users (MAUs). It currently controls about 10% of Russia's e-commerce market, and plans to double its share to about 20% by 2025.
Back in 2020, AliExpress Russia predicted it could grow its revenue to $10 billion by 2022 or 2023 while serving 50 million customers. Last October, it revealed that its gross merchandise volume (GMV), or the value of all products sold on its platform, had risen 36% year over year to 133.3 billion rubles ($1.86 billion at the time) in the first half of 2021.
AliExpress Russia had planned to raise fresh capital through an IPO in 2022. However, the recent economic sanctions against Russia (which hit all three of the joint venture's Russian investors), the ruble's collapse, and the Moscow Stock Exchange's closure have likely scuttled those plans.
For now, AliExpress Russia is still fulfilling orders as AliExpress' Chinese business continues to fulfill cross-border shipments to Russia. However, another round of secondary sanctions could still be levied against AliExpress in its other markets for continuing to operate in Russia.
Ukraine has also been one of AliExpress' fastest-growing markets in recent years. SimilarWeb ranked AliExpress as the country's fifth-most-visited e-commerce website at the beginning of 2022, but it will likely need to abandon the once-promising market as the war escalates.
How will this conflict affect Alibaba?
Alibaba doesn't disclose how much revenue it generates in Russia and Ukraine. But based on the size of Alibaba's entire international division and its previous deconsolidation of AliExpress Russia as an investment, we can assume the two countries generate less than 1%-2% of its total revenue.
Baird analyst Colin Sebastian recently called Alibaba's exposure to Russia and Ukraine "quite modest," while noting that AliExpress Russia -- which it only owns a minority voting stake in -- was still a "small investment."
However, Alibaba's international commerce business is still growing at a much faster rate than its domestic marketplaces, which face tough macroeconomic and competitive headwinds. Lazada also continues to struggle against Sea Limited's Shopee in Southeast Asia, which surpassed it as the region's top e-commerce marketplace in recent years.
Russia and Ukraine could have bridged the gap between China and AliExpress' European markets. Its growth could also have tethered more Eastern European markets into its e-commerce ecosystem. The abrupt collapse of that bridge will make it tougher to grow its international business, and force it to reset its long-term expectations for the Russian and European markets.
What's next for AliExpress Russia?
Alibaba can probably afford to withdraw from both Russia and Ukraine without severely damaging its international business. But like DiDi Global, it will probably continue to operate in Russia to avoid the PR backlash against Chinese companies that have left the country.
For now, Alibaba will likely keep quiet about Russia and Ukraine, continue to expand into other markets, and focus on strengthening its core e-commerce and cloud businesses in China. However, investors should still keep a close eye on its Russian business and see how the ongoing conflict and sanctions impact its international business and investments.
