Alibaba has not had the best 14 months. Ever since China’s regulators abruptly abolished the listed offering of its financial technology subsidiary Ant Group, the Chinese technology giant has struggled.
In the midst of these regulatory problems, a declining Chinese economy and increasing competition, its market value has fallen to $ 358 billion. from $ 846 billion. on the eve of the October IPO in October 2020.
With such a difficult environment continuing into the new year, Alibaba, which has been described as China’s answer to Amazon, faces a potentially challenging 2022 – although analysts are counting on the company’s deep pockets and ability to adapt to the huge Chinese market. to his advantage.
The Ant agreement, which was planned for double listings in Shanghai and Hong Kong, was to raise DKK 34 billion. USD. That would have made it the biggest IPO ever.
Instead, the deal is put on hold indefinitely as Ant works to meet a number of new regulatory requirements during Beijing’s crackdown on Big Tech, which aims to curb the market power of technology giants, increase consumer protection and reintroduce the role of the ruling Communist Party in China. private. economy.
Under the rule of Xi Jinping, China’s most powerful leader since President Mao Zedong, Beijing has humiliated technological juggernauts that once seemed unassailable.
In fact, Alibaba founder Jack Ma was so confident in his company’s position that he criticized China’s financial regulators to their faces in a now infamous speech in October 2020 in Shanghai, telling them “the game in the future is about innovation, not just regulatory skills”.
“Apart from Mas Shanghai’s speech, because of its size and wealth, Alibaba became the poster for government repression,” Daniel Tu, founder and CEO of Hong Kong-based asset management consultancy Active Creation Capital, told Al Jazeera. “The company and other major Chinese technology platforms became fundamentally a threat to government authority.”
While Alibaba paid a record-breaking antitrust fine of 2.8 billion. USD in September, after regulators found out they had abused its market position, the amount was small for a company earning more than 100 billion. USD per year. Necessary changes to its business model will have more far-reaching consequences. Restructuring will reduce the profitability of Ant Group’s once lucrative lending business and slow down its formidable data collection capacity.
“The rising rules in China signal the end of an era of so-called ‘wild growth’ of Chinese technology companies,” Winston Ma, managing partner and co-founder of venture capital firm CloudTree Ventures, told Al Jazeera. “The new regulatory framework means more control and potential changes to the business models of China’s Internet giants.”
In December, Alibaba unveiled a restructuring plan that will split its core e-commerce into separate global and domestic entities.
“Through the reorganization, Alibaba will be able to more clearly identify domestic demand to effectively increase sales in China through its China Digital Business Unit, while expanding e-commerce and logistics businesses abroad through the Overseas Digital Business Unit,” said Yannie Liao, an industry analyst. at the Semi-State Marketing & Consulting Institute (MIC) in Taipei, Al Jazeera said.
Thanks to the success of their flagship e-commerce platforms, Taobao and TMall, Alibaba has long been China’s largest online trading marketplace.
However, its share of China’s e-commerce market fell steadily from 78 percent in 2015 to an estimated 51 percent in 2021, according to research firm eMarketer. Most of this decline occurred before China’s Big Tech crash, reflecting intensified competition and changing consumer habits. Alibaba’s e-commerce business relies primarily on search, which is less popular with younger Chinese shoppers than live streaming or other interactive ways of shopping.
At the same time, China’s economy is declining and consumer habits reflect this change. The wasted consumption that defined China’s go-go year in the late 2000s and early 2010s is being phased out. Deutsche Bank estimates that the Chinese economy will grow only 5 percent this year, compared to 8.1 percent in 2021.
Outlook for Southeast Asia
“In view of the many uncertainties caused by the impact of the pandemic, the consumer outlook for young consumers [those born since 1990] become more rational, ”wrote Cheng Shi, chief economist at ICBC International Securities, in a commentary published by Chinese media Yicai in September. “We believe this will continue even after the pandemic ends.”
The outlook for growth in Southeast Asia is brighter. The Internet economies of countries such as Indonesia, the Philippines and Vietnam are relatively incipient, similar to China’s around 2010, which inspired Alibaba to aggressively expand in the region through its Singapore headquarters e-commerce platform Lazada. Lazada’s annual active consumers rose 80 percent to 130 million in the 18 months to September 2021, Alibaba said at an investor presentation at the end of last year.
At present, Alibaba remains the largest e-commerce retailer in China and the second largest Chinese Internet company by market value after the gaming giant Tencent. Alibaba’s deep pockets are crucial to its future prospects, analysts say.
As for China’s Big Tech crash, “the government needs private companies to restructure to accommodate the latest demands,” Herbert Yum, Euromonitor’s head of research at Hong Kong, told Al Jazeera. “As long as they are financially sound, they can adapt their business successfully.”
Yum noted that Alibaba’s cash flow remains stable despite the many headwinds the company is facing. Net income growth fell sharply in the financial year 2021, but still managed to expand 4 percent to reach 20.9 billion. In the previous fiscal year before repression, Alibaba’s net income grew nearly 68 percent to reach $ 20.2 billion. USD.
Such groundbreaking growth is unlikely to return for Alibaba, but it is not alone. All of China’s Internet companies are facing a more difficult business environment.
Good for Alibaba is a sustained ability to meet the needs of China, the world’s largest e-commerce market. Despite the company’s international expansion efforts, China remains a priority.
“Alibeba is still focused on China because it is [company’s] largest source of revenue and still offers enormous market potential, ”said Euromonitors Yum.
Data and analytics firm GlobalData predicts that China’s e-commerce market will grow by an annual cut of 11.6 percent between 2021 and 2025 to reach $ 3.3 trillion.
Cloud computing offers Alibaba further growth opportunities. In fiscal year 2021, the company’s Alibaba Cloud unit reported $ 9.18 billion. USD in revenue, an increase of 50 percent over the previous year. MIC’s Liao noted that Alibaba’s cloud computing revenue has grown on a quarterly basis since the first quarter of 2020.
However, there are also regulatory barriers in cloud computing. Active Creation Capitals Tu noted that in August, prior to the implementation of a national data security law, Beijing ordered state-owned enterprises to accelerate the migration of their data from private carriers such as Alibaba and Tencent to the government’s cloud infrastructure.
The loss of business will be significant, although Alibaba can still work with the private sector. China’s public cloud market was 19.4 billion. USD worth in 2020, according to research firm International Data Corporation.
“In the context of the ongoing repression and reforms, it would be necessary for Alibaba to turn and focus on the areas that synchronize with national initiatives – ‘hard technologies’ such as semiconductors, artificial intelligence and quantum computers,” Tu said.