Over the past few years, Alibaba (BABA) has transitioned from a traditional e-commerce company to a Big Data-centric conglomerate, with transaction data from its marketplaces, financial services, and logistics businesses allowing it to move into cloud computing, media/entertainment, and online-to-offline services. We've long thought that a strong network effect can allow e-commerce players to extend into other growth avenues, and nowhere is that more evident than Alibaba.
Alibaba’s Internet services affect the vast majority of Chinese Internet users in some way, including a 70% penetration rate for the Taobao/Tmall e-commerce marketplaces. This provides Alibaba with an unparalleled source data that it can use to help merchants and other consumer brands develop personalized mobile marketing and content strategies to expand their target audiences, increase click-through rates and physical store transactions, and improve return on investment. While Alibaba has temporarily suspended certain merchant fees against an uneven macro backdrop, its marketplace monetization rates have generally trended upward, indicating that sellers are becoming increasingly dependent on its marketplaces and payment solutions. Retail revenue per active user continues to outpace other China rivals, owing in part to an emphasis on higher-quality merchants.
R.J. Hottovy, CFA does not own shares in any of the securities mentioned above. Find out about Morningstar's editorial policies.