According the Alizila, Alibaba Group’s news network, during the 2018 festival, over 40% of consumers bought from international brands. The top countries selling to China were Japan, the US, South Korea, Australia and Germany. Also, 237 brands topped 100mn yuan in GMV, including leading international brands Apple, Dyson, Kindle, Estée Lauder, L’Oréal, Nestle, Gap, Nike and Adidas.
According to the national bureau of statistics in China online retail sales have slowed 10.3% throughout 2018, from 37.3% YoY in February to 27% YoY in September. However, the Singles Day sales numbers confirm that consumer confidence in China is not yet feeling the pinch from trade tensions and the domestic slowdown. The sales figure of 213.5bn yuan represents an average of 5% of per capita disposable monthly income spent across the entire Chinese population. In fact, on these numbers alone, it looks like the secular growth thematic of the middle-class consumption premiumisation we have previously written about
is alive and well and consumers certainly haven’t stopped shopping.
Another secular growth theme arises from China’s lower-tier cities and rural areas as they become larger and wealthier, injecting further consumption potential into the economy. Income growth and urbanisation upgrades purchasing power in these areas which has been a key focus for Alibaba’s Taobao platform. Alibaba offered discount coupons in rural counties to promote customer penetration beyond cities, as well as employing “Rural Taobao representatives” at village centres. This has proven to be a successful strategy with sales in rural areas picking up in this year's Singles Day frenzy. Sales of Buick vehicles in rural areas, an automobile brand of the American manufacturer General Motors (GM), accounted for 1/7th of the total Buick sales.
There are currently 52 sell-side analysts covering Alibaba, of which 51 have a buy rating with just one hold rating. The average 12-month price target is $206.53, which represents a 42.6% premium to yesterday's close.
Despite sell-side analysts’ bullish recommendations, Alibaba’s stock has declined substantially in recent months. Alibaba is now trading 30% off the June 2018 highs, but long-term growth and earnings potential is still robust despite the economic impact of trade tensions.
If you are a long-term investor, the fundamentals are strong for Alibaba and the recent pullback in price could present an opportunity, although downside risks exist if the macro headwinds in China persist. However, given the large equity market declines and indiscriminate sell-off that has already been seen YTD, one could argue that the growth slowdown and adverse trade war impact has already been priced-in, leaving limited downside risk in the market. With the Chinese government being firm on supporting the economy it is our expectation that further weakness from here will not take the market down and that Beijing’s support should not be underestimated.
Alibaba enjoys a dominant position in the Chinese market and has increased its footprint both domestically as well as into new markets, leaving it firmly placed for expansion in the coming years. The Chinese middle class will grow from 12% of the country's population in 2009 to 73% in 2030, according to OECD statistics. These demographic shifts have unleashed a wave of consumer spending in China from which Alibaba benefits. The company operates two of China’s most popular online market places, Taobau and Tmall, which are the go-to options for products and services online.