Alabama group is a relatively young Chinese e-commerce company that provides sales services through online and mobile platforms in retail and wholesale trade. Since its inception in year 1 999, Alabama achieved the status of being the largest online and mobile commerce company in the world if measured using gross merchandise volume (GEM). With Alibi’s commitment to ease the way consumers, merchants and others do business, away from a traditional marketplace, Alabama aims to be a leader in the industry.
Alibi’s success is attributed to its knowledge in the Chinese market, however with stagnating China’s economy, Alabama needs to find ways to further grow their company and to remain sustainable in the competitive market environment. The potential market in this industry is enormous, thus attracting a myriad of local competitors such as Jingling and Tangent and global competitors such as Amazon and eBay. With all these in mind, Alabama has to decide a suitable strategy on whether to expand to rural China, to expand internationally, to diversify into new businesses or to remain innovate to beat rising competition within the industry.
The first steps Alabama did in its bid to grow the company is to release an initial public offering (PIP) on the New York Stock Exchange in Swept 2014 and had a market capitalization of around IIS$201. . In the global marketplace, Alabama is far from being a leader. Financial summary? Milestones? 2. ALABAMA BACKGROUND AND HISTORY 2. 1 . GENERAL OVERVIEW OF ALABAMA Jack Ma and 17 other founding members established Alabama from Jack Ma’s apartment in Hangout, China in 1 999 and launched the Company’s first online business-to-business (BIB) marketplace – Alabama. Mom, which targets international e-commerce activity. In the same year, Alabama introduced domestic wholesale platform – 1688. Com, which targets local wholesale trade and serves as an extension of its BIB business model. Refer to Table 1 in Appendix for history and major milestones of Alabama) Alabama focused on empowering small business by allowing them to tap on internet and tech oenology so that they may enhance their overall effectiveness and competitiveness.
Alibi’s philosophy of doing business is aligned with their six key values and it shapes the direction of every business decision it makes. Under the stewardship of Jack Ma and dedicated support from his professional management team, (Refer to Table 2 in Appendix for profile of Jack Ma and his key management) Alabama has experienced instrumental Roth which saw its e-commerce business become the world biggest e- commerce giant with annual active buyers of 334 million, mobile Magus of 265 million, 9-months gross merchandise value (GEM) of RMI 844 bio and 9- months revenue of RHOMB. Bibb in less than two decades. In addition, Alabama was rated with high credit rating (which is only one notch below the country sovereign rating) by prominent international rating agencies, a reflective of not only the Company’s strong market presence in the China’s e- commerce but also its solid financial structure. (Refer to Table 4 & 5 for
Alibi’s credit rating and China’s sovereign rating) Today, Alabama owns diverse business units comprising Taboo Marketplace – the popular consumer-to-consumer (ICC) online shopping website in China, Tamale – the China’s largest brands and retail marketplace, Schumann – the China’s well-known group buying platforms, and Allegories – an international business-to-consumer (BBC) marketplace that enables international buyers to purchase products from sellers in China.
In addition, Alabama has forayed into areas that support the growth of key business lines including among others, he marketing services – Lima, online payment business – Lippy, data management and cloud computing business -” Alabama Cloud Computing, and logistics business – China Smart Logistics. Alibi’s businesses are consolidated under the holding entity – Alabama Group Holding Limited, a Cayman Islands company incorporated on 28 June 1999.
Alabama went for initial public offering (PIP) on the New York Stock Exchange in Swept 2014 and had a market capitalization of around IIS$ADD. Bio as at 1 7 April 201 56. (Refer to Chart 1 for market capitalization and historical share price Of Alabama) Alibi’s major shareholders include Softbank (34. %), a long-time strategic investor of Alabama since 2000 and a listed Japanese Company with businesses mainly related to telecommunication and internet, Yahoo (22. 6%), a strategic investor since 2005 and a global internet firm with its famous Yahoo! Bessie and search engine, Jack Ma (8. 9%) and Joseph Tsar (3. 6%), the lead founder and co-founder of Alabama respectively. (Refer to Table 3 for major shareholders of Alabama). 2. 2 MISSION/VISION Alabama pursues the mission To Make It Easy to Do Business Everywhere”, which explains the Company’s future strategies and drives Alabama to establish an unique yet powerful ecosystem that allows buyers, sellers and other participants to produce value and benefit from the value generated on its marketplaces.
This empowers small businesses because the well- established ecosystem makes e-commerce easy and convenient, which encourages businesses to tap on such technology and platform to enhance their competencies and enlarge market opportunities, increasing their effectiveness and competitiveness against local and overseas rivals. Alabama has the vision Of staying in business for at least 102 years and will be a place for its customers to meet, work and live. With this vision, Alabama will always remain mindful about building a business model, infrastructure and ecosystem that enables it to achieve long term sustainability and visibility. 3.
STRATEGIC ANALYSIS 3. 1 . BUSINESS ANALYSIS 3. 1. 1 Overview Alabama is the largest online and mobile commerce company in the world in terms of gross merchandise volume. Its core business is e-commerce platform, which could be divided into “domestic” and “international” based on region. These two could future divided into “retail” and “wholesale” respectively. In addition, Alabama group also has small diversification business nits such as cloud computing and internet Infrastructure and others. Alibi’s revenue is primarily generated from merchants through online marketing services, commission on transactions and fees for online services.
They also generate revenues through fees from memberships, value-added services and cloud computing services. Below are the core e commerce business unit of Alabama in terms of the four business lines: With regards to the revenue structure of Alabama, domestic retail market is the biggest source of revenue for Alabama. In the last quarter of year of 2014, China retail market account for 82% of the total revenue. Alabama created its own complete business ecosystem. The cycle and focus group of each business line can be represented in the following graph: 3. 2. Domestic retail market Rapid Growth driven by China Domestic Market Based on Alibi’s past 4 years’ financial performance, illustrated in the chart below, the CARR of the revenue was 45%. In other words, Alibi’s revenue across all business lines on average has been growing at 45% per year. To breakdown the growth rate by business segments, revenue contributed by China Commerce segment has been leading the growth, with CARR over the sat 4 year at 56%. Similarly, based on the year-on-year financial data comparison, the revenue from China Commerce has grown by 55% from FYI g’s ARM 35. 16 million to ARM 45. 13 million in IFFY.
The second largest revenue contributing segment is International Commerce, which reported revenue of ARM 4. 85 million for the 12 months ended 31 March 2014, which showed 17% increase from prior year’s ARM 3. 56 million. Alabama Group Revenue from 2011 to 2014 (Extract from Alabama PIP prospectus 2014) Business Model Alibi’s principal business revenue is from its online marketing services hereby revenue is derived mainly from novo methods, namely commission fees charged on sellers based on transaction value of the goods sold through the Alabama platform; and sale of memberships on the wholesale marketplaces.
Alibi’s marketing customers are typically brand owners, distributors and merchants who are sellers on Alibi’s marketplace. The revenue contributed by an individual seller using Alabama online marketing services generally depends on its expected Gross Merchandise Volume (thereafter called “GEM’), profit margins and lifetime value of the customers derived from such marketing investment. It was revealed in Alibi’s Prospectus that sellers on Tamale and Schumann are required to pay a commission typically ranging from 0. 5% to 5% of GEM settled through Lippy depending on the product category.
For wholesale marketplaces (or “BIB business”), the revenue is mainly derived from membership fees. The business model has worked so far. With revenue grew 72. 4% from fiscal year 201 2 to fiscal year 201 3, and 52. 1 % year-on-year for the 12 months ended 31 March 2014 Revenue Driver Analysis Latest Quarterly Financial Based on Alibi’s latest quarterly financial data release for the 3 months need 31 December 2014, its GEM has been growing 41. 5% quarter-on- quarter from ARM 556 billion in Seep 2014 (Q) to ARM 787 billion in Deck 2014 (Q).
To compare the GEM to Total Revenue, it is estimated on average that 3. 0% of GEM translates into revenue in Q while for Q, the quarterly revenue represented 33% of the corresponding GEM. The revenue growth was deemed significant in Q, as for a 3 months’ period, Alabama registered a revenue of ARM 26. 2 billion, 56% growth from previous quarter. For the 9 months ended 31 December 2014, the cumulative revenue Was ARM 58. 8 lion, which already exceeded the full year revenue of ARM 52. 5 billion for the 12-month ended 31 March 2014.
Based on the GEM and Revenue performance of Alabama, it is not difficult to deduce the profitability of Alabama, which also saw a sharp rise in net income in the Q of 2014. Net income for the 4th quarter was ARM 13. 1 billion or 50% of the total revenue. This was comparable to Alibi’s net profit margin for the fiscal year 2013 and fiscal year 2014 at 40% and 53% respectively. China Retail Marketplace The China e-commerce business contributed to 84. 6% of Alibi’s total avenue for the quarter ending 31 Deck 2014 (IFFY: 86. 0%).
Our group decided to do a closer examination on the breakdown of different business lines within the China E-commerce segment. This segment has been consisting of mainly Taboo Marketplace which is the generic Alabama platform that connects individual customers and retailers to engage in e-commerce businesses nation-wide whereby the entry level is generally low; Tamale on the other hand was set up as a BBC e-commerce platform tailored to more sophisticated business sellers whose target customers are also more quality and brand conscious.
The following chart illustrates the GEM of Tamale and Taboo Marketplace over the last 2 years on quarterly basis. Albeit a smaller contribution to the total GEM, Tamale GEM has been growing rapidly over the last 2 years, from ARM 88 billion GEM in 2Q2013 to ARM 293 billion GEM in 4Q2014, an increase of more than 232%. On the other hand, Taboo Marketplace GEM increased by 92. 2% from ARMS 257 billion in 2Q2013 to ARM 494 billion in 4Q2014. Similarly, the % contribution to total GEM by Tamale has been on a steady increasing trend over the last 4 quarters in 2014, from 31 % in SQUISH to 37% in 4Q2014.
This shows T mall has been contributing to a larger and larger GEM to the Alabama as a whole. And perhaps more BBC customers are adopting Tamale as their e-commerce platform to engage internet trading businesses due to the demographics changes in China. Mobile Shopping Gaining Momentum From fiscal year 201 3 to fiscal year 2014, Alabama has also been conscientiously growing its market share in mobile e-commerce market, as it realized the market potential of the mobile shoppers in China. Gross merchant volume of Mobile business rose by 214% to ARM 327 billion in 4Q2014, up from ARM 104 billion in same quarter of 2013.
Mobile GEM accounted for 42% of the total China Marketplace GEM, up from 20% in the same quarter of 2013. Mobile revenue registered ARM 6. 42 billion in 4Q2014, which was more than 4 times higher than in the same period last year and accounted for 30% of total China retail marketplace revenue. Both the mobile revenue business line and its contribution to the total revenue was on the rising trend over the last 2 fiscal years. This further shows the vast market opportunities and growth potential of mobile shoppers for Alabama in China.
The revenue contribution by Mobile business is illustrated in the following chart. Based on a research report by Reuters in Novo 2014, it was reported that Alibi’s investments are geared toward adding more customers and converting them into users of Alibi’s core e-commerce businesses, as well as increasing the number of products and services Alabama offers. It will continue to make strategic investments such as its mobile operating system, location-based services and digital entertainment, though some of them are long-term projects. (Extract from “Alibi’s results affirm growth, but margins slide.
Duet Novo 4, 2014, Beijing/ By Paul Carotene 3. 2. 3 Global wholesale market (Alabama. Com) Alabama began operations in 1999 with Alabama. Com, an English-language marketplace for global trade, which help small exporters engage in manufacturing and trading, primarily located in China, to reach global buyers. Before establish of Taboo. Com marketplace, Alabama group was focused on wholesale market. From the business cycle we could see that the target market of Alabama. Com is the transaction between global wholesale buyers and global wholesalers, manufactures.
The website has been covered more than 240 countries and regions. Alibi’s international wholesales commerce revenue has been growing in numbers till 1,209 million ARM for fourth quarter of 2014. However the percentage dropped from 7. 04% in second quarter 2014 to 4. 62% in fourth quarter. This shows the increase of the global wholesale segment is slower than the increase Of the whole company. The revenue is generated by membership fees, value added services and online marketing services. 3. 2. 4 Domestic wholesale market (1688. Com) 1688. Mom is Baby’s e-platform product targeting the China wholesale marketplace formerly known as Alabama. Com. CNN. This platform is a wholesale channel for merchants doing business on retail marketplaces to source rodents, which was established in 1 999 together with Alabama-corn. From the business cycle, the target market of 1688. Com is transaction between Chinese wholesalers, manufactures and brand or small business buyers. Alibi’s international wholesales commerce revenue has been growing constantly and reached 860 million ARM for fourth quarter of 2014.
We could see from the below table that the percentage of the revenue contribution was normally around 4%. The revenue is generated by membership fees, value added services and online marketing services. 3. 2. 5 Global retail market(Allegories. Com) Allegories is a transaction based platform, which allows smaller retail buyers to buy small quantities of goods at wholesale price. Market wise Allegories provide platform between global retail consumers and small/branded sellers as well as Chinese wholesalers .
It complete the effect ecosystem of Alibi’s marketplace. Global retail market account for around 2% of the total revenue. Although it is the smallest compare to other three business line, it is necessary for the completion of the product line. The revenue is generated through commission, which are generally 5% GAVE for transactions settled wrought Lippy. 3. 2. 6 Cloud computing and Internet Infrastructure Alabama cloud computing offers computing services include elastic computing, database service and storage and large scale computing services.
Revenue is generated from time- and user-based provision of cloud service, as well as from web-hosting and domain name registration. It perform service to all platforms, the platforms of related companies, and other third-party customers. 3. 2. 7 Others Investment, Acquisition and Strategic Alliance Activities. Alabama also use investment, acquisition and strategic alliance to increase heir service offering and expand their capability: Company formed a strategic alliance with Webb(Leading social media platform in China) to jointly explore social commerce and develop innovative marketing solution.
As their digital media strategy, Alabama invested and purchased Yuk Outdo Inc( China’s leading Internet television company) share representing an effective equity interest of 16. 5% on a fully-diluted basis, And 60% of issued share capital of Association Media Group Ltd(A producer of movie and television programs). These indicate their intention to diversify into the digital media market. Company also had a merger agreement with Automation Holdings Limited( A leading provider of digital map navigation and location-based solutions) in order to enhance their 020 and location-based services. . 2. MARKET ANALYSIS 3. 2. 1 China’s Market Size As of December 201 3, China has a large population base of around 1. 35 billion. It is the fourth largest country in size after Russia, Canada and USA and if measured based on PAP (Purchasing Power Parity) scale, it is the second largest economy in the world after USA. About 45% of China’s population are Internet users (61 8 million) and 37% are bile Internet users (500 million). There are approximately around 302 million Internet shoppers in China, with around 7. 9% of online shopping sales against total China consumption’s.