Alibaba's overseas, why hasn't it reached the best time to go public yet?

Alibaba's international e-commerce department, including major electronic product brands Lazada and AliExpress, is reportedly seeking to go public in the US, according to Bloomberg on May 4. An anonymous source mentioned that the size of the IPO has not yet been determined, but is currently in talks with some banks and may be preparing for next year's IPO. However, Alibaba's international digital business group denied the rumors and said there are currently no plans to go public. This is not the first business under Alibaba to be rumored to go public. Previously, after Alibaba announced the "1+6+N" organizational change, businesses such as Hema and Cainiao were also reported to be interested in independent listing. Compared to the international e-commerce department, their response was much milder. For example, a person from Cainiao said that going public is a matter of course, but there is currently no specific plan or timetable. Behind the denial of the IPO rumor is Alibaba's dilemma overseas. After launching the "most important organizational change in 24 years of founding," the international digital business group led by Jiang Fan is one of the six major business groups. As the operating entity of Alibaba's overseas business, the international digital business group bears heavy responsibilities: it needs to continue to prove its ability to open up new territories for the entire group and tell Alibaba's globalization story. In the most recent quarter, Alibaba's core business in China declined, and progress in cloud services was not satisfactory. Instead, international business grew by double digits, which was surprising. The incremental overseas market has strategic significance for Alibaba's "breakthrough." However, Alibaba's overseas business is still in the stage of expanding its scale and cannot do without Alibaba's support. Perhaps it does not have the conditions for independent listing. At the same time, there are huge pressures from localization, business growth, and peer competition from overseas businesses. Compared with going public, it is more urgent to expand and strengthen the business. For Alibaba's international digital business group, going public is inevitable, but now may not be the best time. "Burning money to expand territory" is still ongoing, and Alibaba's support is still needed at this stage. As one of the six major business groups, with rumors of going public, Alibaba's overseas business and Cainiao have significant differences in financial performance and growth pressure. In the third quarter of the 2023 fiscal year, after offsetting cross-departmental transactions, Cainiao's single-quarter revenue reached RMB 16.553 billion, a year-on-year increase of 27%; adjusted Cainiao EBITA loss was RMB 12 million, a year-on-year decrease of 87%. To some extent, Cainiao has come to the eve of independent profitability and has the possibility of independent listing. However, the situation for Alibaba's international business is slightly more complicated. During the reporting period, the revenue of Alibaba's international business department was RMB 19.465 billion, an increase of 18% year-on-year, achieving rare double-digit growth. By comparison, Alibaba's overseas business and Alibaba Cloud contributed about 8% of the group's total revenue, but Alibaba's overseas business achieved six times the growth rate of its cloud business.

Behind the impressive growth trend, Alibaba's overseas losses are still evident: after adjustment, the loss rate of Alibaba's international business has narrowed from 18% in the same period last year to 4%, but Alibaba's "burning money to expand territory" overseas is far from over, and losses are still ongoing.

Alibaba's overseas business landscape includes B2B platform Alibaba.com, "global version of Taobao" AliExpress, and various e-commerce platforms, such as Lazada, which is booming in Southeast Asia, the recently performing Turkish e-commerce platform Trendyol, and the relatively weak South Asian e-commerce platform Daraz.

At present, Alibaba's main incremental growth comes from e-commerce business. In the third quarter of the 2023 fiscal year, the revenue of Alibaba's international business wholesale business was RMB 4.821 billion, which was basically flat compared with the same period last year; during the same period, the revenue of international business retail business soared by 26% to RMB 14.644 billion.

The growth is due to real investment.

In 2016, Alibaba acquired a controlling stake in Lazada and has since invested more than $5.6 billion. After the "1+6+N" organizational structure adjustment, Alibaba is still providing funding to Lazada. Recently, data from the Accounting and Corporate Regulatory Authority (ACRA) of Singapore showed that Alibaba has injected $353 million into Lazada.

In recent years, it has become a consensus for companies to shift from pursuing growth to pursuing profitability, and reducing costs and increasing efficiency has become the norm. However, this does not mean that investment is not needed, and even due to market competition and other factors, the investment intensity may be greater than before.

Alibaba's overseas business is in such a situation.

For example, in the Southeast Asian e-commerce market, Metric.vn data shows that from November 2021 to May 2022, Shopee monopolized 72% of the Vietnamese market share, while Lazada had 20%. To withstand competitive pressure, Lazada's burning of money is inevitable.

Unlike domestic e-commerce, it is impossible to reuse the infrastructure conditions of domestic business when expanding overseas. Enterprises often need to build supply chains and local teams from scratch. For Alibaba's international business department, this investment is related to the competitiveness of the core platform and should not be saved, nor can it be saved. In fact, since Jiang Fan took office, the investment in localizing overseas e-commerce has increased rather than decreased, which also reveals Alibaba's determination to "provide blood, burn money, and grow" overseas. From the recent developments, whether as part of Alibaba or as an independent business group that may even go public in the future, the top priority for Alibaba's overseas business is still expansion and growth, with profitability being relatively secondary.

And expansion cannot be achieved without continuous investment.

Growth targets and localization pressure, Alibaba overseas can only move forward

From July to September last year, Alibaba's revenue increased by 3% year-on-year; from October to December last year, the group's revenue growth rate decreased to 2% year-on-year. In these two quarters, the overall performance of the group's adjusted profit and loss statement exceeded expectations.

However, the financial advantage cannot conceal the business disadvantage. Alibaba is now at a crossroads of its own.

Zhang Yong has made it clear that Alibaba's three major strategies are consumption, cloud computing, and globalization. However, in recent years, due to increasingly fierce e-commerce competition, unfavorable macro environment, and other factors, Alibaba's domestic e-commerce business, which is the basic plate of Alibaba, has continued to be under pressure, and Alibaba's cloud business, which was once highly anticipated, has also maintained a low growth rate of less than 5% for two consecutive quarters, and is unlikely to become a new engine driving Alibaba's growth in the short term.

Under these circumstances, looking at the growth rate alone, Alibaba can only hope for globalization if it wants to cultivate a new growth curve. Perhaps this is also one of the reasons why the group sent Jiang Fan, who is good at developing new businesses, to take full control of the overseas business.

In terms of strategic layout, Alibaba's overseas business needs to expand and seek growth, which is almost undisputed.

In the seven years since Jiang Fan led the Taobao system, Alibaba's e-commerce user base has grown from over 100 million to nearly 1 billion, and Taobao's GMV has grown from over RMB 1 trillion to nearly RMB 9 trillion. In the "1+6+N" reform, Jiang Fan was appointed CEO of Alibaba International Digital Business Group, which also gave him a feeling of "hope for the whole village".

At present, Alibaba's overseas business needs to tell a good growth story, and Alibaba International Digital Business Group also needs to prove its ability and value. This positioning determines that Alibaba's overseas business is not afraid of burning money, not afraid of losses, and even not afraid of asking the group for money. It is only afraid that burning money cannot bring about scale growth.

It is not difficult to understand why Jiang Fan is almost a "radical" reformer in terms of target planning and project management.

Through the inspection in the first half of last year, Jiang Fan believed that the problem with the overseas business was insufficient localization. In the second half of the year, Jiang Fan immediately began to adjust the management teams in various regions. After appointing Dong Zheng to replace Li Chun as CEO of Lazada, he also "changed leaders" in Thailand, the Philippines, Malaysia and other places, and appointed local business line leaders to grow. Immediately, Lazada quickly stopped its decline.

AliExpress has also undergone adjustments. The status of key operating countries such as South Korea, Spain, and France has been clarified, and corresponding marketing expenses and local talent positions have been provided. In addition, AliExpress launched "full-service management", which assigns sales, logistics, and after-sales to the platform for overall management, reducing the pressure on merchants, and improving sales performance. To some extent, the growth performance of Alibaba's overseas business department proves that these changes are effective.

However, the dilemma of Alibaba's overseas business is far from over.

Alibaba's South Asian e-commerce platform Daraz announced layoffs in February this year. Its relatively weak performance indicates that the business is still affected by various factors and is not stable.

But Alibaba's overseas business is on the line and must be launched.

Whether it is investment in overseas infrastructure, promotion of localization work, or cultivation of overseas user mentality, Alibaba's past money burning in overseas has become a fixed number. Before achieving economies of scale, any hesitation may lead to market collapse and make past efforts a sunk cost.

Scale growth is the premise of Alibaba's overseas profitability and even independent listing, and can only withstand pressure and move forward.

It is not easy for Alibaba's global layout to play a "siege battle" in the breakout game

From the external environment, going abroad in recent years has been the competition focus of various domestic e-commerce giants. Alibaba's international digital business group is not fighting a defensive or positional war, but a siege battle.

Alibaba's overseas opponents are by no means ordinary. For example, Pinduoduo, which has risen in the domestic market of China, has expanded globally through Temu. Today, Temu has officially launched in the United States, Canada, New Zealand, and Australia, and will land in more countries in the future.

The overseas war between Pinduoduo and Alibaba is only a matter of time. In the competition for overseas markets, Pinduoduo does not hesitate to use the strategy of burning money. On the "Super Bowl", Temu spends two advertisements per second. The head-on collision between the two giants, the "burning money war" will only be a small part of the fierce competition.

This month, the fast fashion cross-border e-commerce giant SHEIN officially announced the launch of a platform model and plans to introduce third-party sellers. According to SHEIN's plan, its platform model will not only be limited to Brazil and the United States, but will also go to global markets in the future. Alibaba in the overseas e-commerce field may encounter another powerful opponent.

Problems that can be solved with money are not problems. What Alibaba needs to worry about is how to gain an advantage from the competition.

Developing overseas markets has a fundamental difference from domestic markets: local policies, market environment, user mentality, infrastructure conditions, and industry competition status are completely different.

This is a problem hidden under localization: in different countries, even in different regions and markets in the same country, Alibaba's overseas business is difficult to reuse its previous capabilities. This determines that Alibaba's investment in the local market is almost a mechanical superposition.

There is no shortcut to nibble on the local market. This means that Alibaba not only needs to burn money, but also needs to understand market rules, cultivate user mentality, and even build infrastructure... They may be problems that need to be measured from a time dimension. This is an exam that cannot be passed with money, but every step of it means more investment.

On the one hand, Alibaba needs to do more localization work, using more local people to improve products and services, in order to gain support from the market, government, and local society. On the other hand, Alibaba also needs to continue to invest in operations to gain more market share, so that future growth can be guaranteed. In addition, polishing product capabilities to nurture more products with outstanding performance like Trendyol is also important to open up Alibaba's overseas business.

Tackling these challenges may be the most important issue for Alibaba's overseas business at present.

Going public has many benefits for Alibaba's overseas business, such as stimulating the growth of businesses like Lazada and AliExpress, providing independent evaluation of its performance, and providing financing. Alibaba's main business has always been in China, and the independent listing of its overseas business will also be a milestone event.

But now may not be the best time.

On the one hand, from the perspective of financial performance, operational status, and uncertainty in the international market, neither independent listing nor "de-Alibaba-ization" is mature enough at this time. On the other hand, facing the intense market competition, independent listing may also weaken the competitiveness and attention of Alibaba's overseas business, and may not necessarily bring good news.

At present, for Alibaba's overseas business, scale and growth are more important than profitability. Alibaba's International Digital Business Group's statement that it has no intention of going public at this time may be a good thing, because it means that it can focus more on business growth.

However, the road to globalization is not easy. Alibaba's overseas business needs to work hard to expand the market, increase scale, and open up the situation. At the same time, Alibaba's overseas business needs to work on internal development, which is the key to winning in the changing market environment and industry competition.