This website requires JavaScript.
E-Commerce

Alibaba Singles' Day sales growth rate drops; should the company be worried?

“It is impossible for an economy already that big to keep growing at a breakneck speed. Alibaba is doing a very good job as it is.”

Nov 23, 2018 by Mengjuan Li
Alibaba Singles' Day sales growth rate drops; should the company be worried?

Alibaba raked in CNY 213.5 billion (USD 30.8 billion) in sales on the tenth anniversary of Singles’ Day. On November 11, Alibaba, for the first time in the ten year history of Singles’ Day, broke the CNY 200 billion ceiling in gross merchandise volume (GMV) and closed 1 billion deliveries on a single day. On the flipside, Alibaba’s growth rate dropped below 30% (another first, as 27% year-on-year growth rate is the lowest in the 10 years).

Source: Alibaba Single’s Day statement; Graphics: Mengjuan Li/The Passage
Source: Alibaba Single’s Day statement; Graphics: Mengjuan Li/The Passage

Future tense

Just ahead of Singles’ Day, Alibaba dialed down the 2019 revenue guidance to CNY 375 billion to 383 billion range (USD 54 billion to 55 billion) in its third quarter report- 4% to 6% lower than the previous projection of above 60% growth rate.

In the report, Alibaba chalked up the adjustment to the “fluid macro-economic conditions”.

Alibaba’s stock fell by 36% from its June peak of USD 210.86 to the October low of USD 133.38. The softening economy and escalation of US-China trade war have eroded the consumer confidence. On the top of that, the fierce competition in China’s e-commerce industry has made things worse for the tech titan.

JD, the second largest e-commerce platform in China, bagged CNY 159.8 billion (USD 23 billion) in the Singles’ Day sales. On the eve of Double 11 festival, fashion e-commerce platform Mogujie filed for a USD 200 million IPO. Pinduoduo, another major player, filed for a USD 1.6 billion IPO in July. Tencent is the largest shareholder of JD.com and Mogujie, the second largest shareholder of Pinduoduo and VIPshop.

Source: Corporate Prospectus, financial statements; Graphics: Mengjuan Li/The Passage
Source: Corporate Prospectus, financial statements; Graphics: Mengjuan Li/The Passage

Partnership with Tencent would give the companies access to WeChat’s one billion and counting users. While shopping links from Alibaba’s Taobao and Tmall are blocked on WeChat, the four platforms have secured a place in WeChat’s interface.

Though there’s no specific number on traffic directed from WeChat, the social media marketing has indeed played a big role in Pinduoduo’s mercurial rise. Taobao and Tmall are still the first choice for online shoppers. However, other platforms are slowly getting into the act.

Source: Alibaba corporate financial results, iResearch data; Graphics: Mengjuan Li/The Passage
Source: Alibaba corporate financial results, iResearch data; Graphics: Mengjuan Li/The Passage

Not all is bad for Alibaba

When asked about the growth rate drop, an Alibaba insider told The Passage: “It is impossible for an economy already that big to keep growing at a breakneck speed. Alibaba is doing a very good job as it is.”

The third quarter report showed Alibaba has reaped a net income of CNY 20 billion (USD 2.9 billion), with a quarterly growth speed of more than 50% for 7 consecutive quarters – a clear indicator of its economic health. Numbers don’t always tell the whole story. And surely the Singles’ Day sales is just one metric. The engagement of brands and consumer feedback, should also be accounted for, the Alibaba source said.

The rising net loss, falling GMV and lower-than-expected sales in the mid-year shopping event “618” have raised questions over JD’s prospects. The short-seller Blue Orca has leveled allegations of fabricating results against Pinduoduo as well.

In JD’s case, CNY 2.8 billion (USD 400 million) was spent on technology, more than 70% year-on-year. With JD venturing into artificial intelligence and automation, the current loss looks like a short-term sacrifice for a long-term payoff.

While Alibaba joined forces with Hema supermarkets (now called Freshippo), JD started a private label, 7FRESH, to explore the offline retail. When Alibaba automated its warehouses, JD upgraded JD logistics with AI capabilities. When Alibaba got e-commerce firm Lazada on board to enter Southeast Asia, JD turned to Google and Walmart for global expansion.

Tencent is weighing options to keep up in the wake of the crackdown on video games industry (the most profitable division of Tencent) in China. Tencent’s corporate restructuring in September pointed to a shift towards cloud services- a market dominated by Alibaba.

The game of one-upmanship goes on.

Mengjuan Li

Mengjuan Li is an intern at The Passage. She's a graduate from the University of Warwick, with a major in global media and communications.

Follow Mengjuan Li