Alibaba Group Holding Ltd (NYSE:BABA) is prioritizing long-term growth over near-term profits. However, analysts are warning that the e-commerce giant’s efforts might be hampered by fierce competition.
What Happened: Alibaba’s market dominance has been significantly eroded due to increasing competition and a lack of focus on technological and pricing strategies, reported The Wall Street Journal on Tuesday.
Despite early signs of success, analysts are concerned that the competition could prevent Alibaba from regaining its former market dominance, according to the report. The company’s market share has fallen from an impressive 83% when it went public in 2014 to 39.5% currently, as per data from market researcher Insider Intelligence.
Alibaba’s Chairman, Joe Tsai, admitted that the company’s tepid approach to enhancing technology and pricing strategies had contributed to its loss of market share. The company is now focused on competitive pricing and technology upgrades to improve user interface.
“To some extent, we shot ourselves in the foot by not truly focusing on creating value for users," Tsai said in an interview with Nicolai Tangen, chief executive of Norges Bank Investment Management.
However, analysts at Nomura, Jialong Shi and Rachel Guo, have revised some of their earnings estimates for the company, warning that the new strategy may put profitability under pressure.
"Investors may remain doubtful about its (Alibaba's) ability to deliver a turnaround of its China e-commerce business after having lost significant market share in the past few years," analysts Shi and Guo said.
Despite the challenges, some of Alibaba’s growth initiatives are showing early signs of progress. In the fourth quarter, revenue from Alibaba’s China e-commerce unit, Taobao & Tmall Group, increased by 4%, compared to 2% growth in the previous quarter.
"Basically, we are back in growth. That's a very important message," said Toby Xu, Alibaba's CFO, after the company released earnings in May.
Investors can capitalize on China's developments by diversifying their portfolios with ETFs that provide exposure to the country's growth trajectory. ETFs like KraneShares CSI China Internet ETF (NYSE:KWEB), iShares MSCI China ETF (NASDAQ:MCHI), and iShares China Large-Cap ETF (NYSE:FXI) offer diversified exposure to China’s booming internet sector and large-cap companies, presenting compelling investment opportunities.
Why It Matters: Alibaba’s new e-commerce strategy comes at a time when the company is making significant strides in other areas. For instance, the company recently launched a new AI model, Qwen 2, which received a positive market outlook. This development could potentially help Alibaba in its efforts to enhance user experience and stay competitive in the e-commerce market.
Moreover, Alibaba’s new e-commerce strategy aligns with its projected $60 billion GMV for 2024. This projection, announced in early June, is part of the company’s plan to achieve new business model breakthroughs and revitalize its B2B platform Alibaba.com.
Meanwhile, Alibaba’s competitors, such as Pinduoduo Inc. (NASDAQ:PDD) and JD.com Inc. (NASDAQ:JD), are also making significant strides in the e-commerce market. Pinduoduo’s first-quarter revenue more than doubled to 86.8 billion yuan ($11.98 billion), accounting for around 40% of Alibaba’s group revenue, according to the report.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
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