No one disputes that to reward investors, Alibaba must keep growing at tremendous speed in the years to come, least of all its chairman Jack Ma. The question is, where will Alibaba concentrate its investments and manpower to generate the fast-rising revenues and profits it’s promising?
That challenge will require a highly focused growth strategy. Right now, Alibaba’s plans for expansion are a muddle.
Investors are confused—or if they’re not, they should be—by the dissonance between Alibaba’s long-standing goal of dominating its home market and its newfound mission to become a major force around the globe. In its most recent IPO prospectus, filed on September 5, the e-commerce phenomenon makes little mention of plans to expand outside its home market. Instead, it touts Alibaba’s commanding position in China and its ideal positioning to ride the growth wave in digital shopping, which is one of the great consumer trends in history.
To make its point, the prospectus is famously packed with staggering statistics, among them that Alibaba handles $298 billion a year in online retail orders and controls 86% of the mushrooming mobile marketplace. Put simply, you could summarize the 665-page prospectus in four words, “China is our future.”
But on its recent IPO roadshow, Ma has been selling a totally different strategy. On September 15 in Hong Kong, Ma told reporters that Alibaba harbors big growth ambitions in the U.S. and Europe. And later in San Francisco, he lauded Alibaba’s prospects in Russia and Brazil.
“It’s not clear what their strategy is,” says Josh Green, co-founder and CEO of Panjiva, a firm that provides global trade data to corporate customers. “The prospectus is all about opportunities in China, and Ma is now talking about his global ambitions. It may be all right for now because they’re doing so well, but in the medium-term, investors will look with a wary eye on any investment that doesn’t have a coherent strategy.”
Green believes that Alibaba ought to deepen its dominance in China. “They’re in a network business,” he says. “The more customers they attract at home, the more businesses follow, then more customers want the new products, and the customer base grows in a mutually reinforcing cycle.”
Investing in Alibaba constitutes a bet on a single nation, and the China of tomorrow may not prove the juggernaut of the past decade, particularly given the recent news of its slowing growth rate and the threat of a downward spiral in real estate prices and construction. Still, getting stronger in the areas in which you’re already a leader makes sense.
Surprisingly, Alibaba—by its action, rather than its words—isn’t showing a lot of confidence in the next phase of China’s e-commerce miracle. Rather than concentrating solely on digital, it is buying lots of unrelated businesses, including a movie studio, an appliance manufacturer, and a soccer team.
“I’d like to ask Alibaba if they’re bullish or bearish on China,” asks Green. “If they’re bullish, they’d use their poll position to do everything to exploit their dominance.”