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Alibaba Group Holding Ltd provides technology infrastructure and marketing platforms. The Company operates through seven segments. China Commerce segment includes China retail commerce businesses such as Taobao, Tmall and Freshippo, among others, and wholesale business. International Commerce segment includes international retail and wholesale commerce businesses such as Lazada and AliExpress. Local Consumer Services segment includes location-based businesses such as Ele.me, Amap, Fliggy and others. Cainiao segment includes domestic and international one-stop-shop logistics services and supply chain management solutions. Cloud segment provides public and hybrid cloud services like Alibaba Cloud and DingTalk for domestic and foreign enterprises. Digital Media and Entertainment segment includes Youku, Quark and Alibaba Pictures, other content and distribution platforms and online games business. Innovation Initiatives and Others segment include Damo Academy, Tmall Genie and others.
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What is Alibaba Group?
It's not just a Chinese Amazon. Alibaba Group Holding Limited is one of the world’s largest technology companies. Founded in 1999 by Jack Ma in Hangzhou, China, the Alibaba ecosystem currently has 1.28 billion annual active consumers. It provides both marketing reach and a technology infrastructure for merchants, brands, retailers and other businesses around the world.
Alibaba Group began purely as an e-commerce platform. It consolidated its market dominance in China by adding integrated digital payments systems as well as logistical solutions for both wholesale and retail products. This combination of e-commerce, digital payments and logistics has come to be known by many analysts as Alibaba’s “Iron Triangle.”
How does Alibaba (BABA) make money ?
Building upon the power of the “Iron Triangle,” Alibaba Group has grown to operate in five major segments today: Core Commerce, Cloud Computing, Digital Media and Entertainment, Logistics as well as Innovation Initiatives.
Under their Core Commerce category, Alibaba.com, Tmall and Taobao are some of the largest revenue contributors through fees, commissions, sales, advertising and memberships. Alibaba.com focuses on B2B trade, connecting buyers and suppliers in China and around the world. Tmall is a B2C solution specialising in luxury brands such as Louis Vuitton and Gucci. Taobao is a platform that facilitates C2C sales. Both Tmall and Taobao operate in China only.
Alibaba’s Cloud Computing category is dominant in China but also offers 25 regional data centres globally. These include South Korea, Thailand, Malaysia, Singapore, Indonesia, Japan, Germany and Dubai.
Digital Media and Entertainment earns revenue via memberships on Youku (Alibaba’s video hosting service) and Alibaba Pictures which invests in content investment and distribution.
Logistics revenue comes from Cainiao, which ensures packages are delivered around China and internationally.
Alibaba Group’s Innovation Initiatives, which include the development and sales of the Tmall Genie, contribute the least revenue.
Is BABA an ADR?
Yes, as Alibaba Group is a Chinese company, BABA stocks are ADRs. These ADRs are listed on the New York Stock Exchange (NYSE).
What is an ADR?
An ADR is an American Depository Receipt. ADRs are equities that trade on American exchanges but represent stocks in a foreign corporation. ADRs make it easier for non-U.S. companies to access U.S. capital markets.
What happened with BABA and the Chinese crackdown?
The Chinese government began a regulatory crackdown on its technology sector beginning with the suspension of Alibaba’s Ant Group IPO in November, 2020.
A month later, the State Administration of Market Regulation (SAMR) launched an antitrust investigation into Alibaba Group. This investigation found that Alibaba had been demanding vendors transact on Alibaba exclusively. This resulted in a record fine of US$2.3b.
A mere three days after Alibaba was fined, 34 other technology firms including Tencent, Meituan, Baidu, JD, Pinduoduo and ByteDance were all put under the regulatory microscope as well. Since then, SAMR has fined almost all of these companies. Didi, China’s largest ride hailing company was pressured to delist from New York and relist in Hong Kong.
Due to China’s crackdown, BABA’s share price has fallen from its highs by more than 70% between October, 2020 and March, 2022.
Is BABA a good buy?
Alibaba is one of the world’s most successful companies. However, many shareholders believe that to own the stock, you need to have a strong understanding of China’s government and economy.
More importantly, you need to be comfortable with China’s regulatory environment and the possibility of further regulatory crackdowns.