Morningstar | BABA Updated Forecasts and Estimates from 27 Aug 2018
Over the past few years, Alibaba has transitioned from a traditional e-commerce marketplace to a big data-centric conglomerate, with transaction data from its marketplaces, financial services, and logistics businesses allowing the company 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. Alibaba's marketplace monetization rates continue to improve, indicating that sellers are becoming increasingly dependent on Alibaba's marketplaces and payment solutions, and retail revenue per active user continues on an upward trend, owing in part to an emphasis on higher-quality merchants.While we view the Taobao and Tmall marketplaces, Cainiao, and Alipay as Alibaba's core cash flow drivers, we also believe Ant Financial, AliCloud, globalization, digital entertainment, and Ele.me (food delivery) offer long-term potential. While AliCloud will probably remain in investment mode near-term, we believe accelerating revenue per customer trends suggest a migration to value-added content delivery and database services that can drive improvement in segment adjusted margins over time. On globalization, third-party merchants are having success reaching Lazada's active users across Southeast Asia, something that should persist in the years to come as the company rolls out incremental personalized mobile marketing and content opportunities in this region. While early, we share management’s views about Ele.me and digital entertainment being important user acquisition and engagement tools.
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