In 2009, Chinese e-commerce giant Alibaba (BABA) turned a local holiday for singles into a 24-hour online shopping spree through deep discounts and other promotions. Singles’ Day, as it is called, has since gained significant traction in China and is now a bigger online shopping day than Black Friday and Cyber Monday combined.
For 2015 Singles’ Day, Alibaba reported total gross merchandise volume (GMV) of $14.3 billion for the day, an increase of over 53% compared to Singles’ Day in 2014. This handily beat consensus expectations of ~$13 billion in GMV, and vastly outpaced GMV growth of 28% in the third quarter of 2015. Alibaba continues to be at the forefront of the shift of Internet shopping to mobile platforms, as it reported that 68% of the orders placed on Singles’ Day were made via mobile. We don’t think “mobile” is a concern for the Chinese e-commerce entity, as it once had been for several US-based social media giants.
CEO Jack Ma believes that the event’s annual growth should continue to be above 50% in the future. Though such a prediction is an incredibly optimistic expectation (especially as the law of large numbers takes hold), we note the company was able to achieve a 50%+ growth rate in the midst of one of the more challenging economic environments in China; therefore, we accept such terrific expansion may not be out of the realm of possibilities moving forward. The wild success of Alibaba on Singles’ Day has others including JD.com (JD) playing catchup, though China’s e-commerce market is so large that there’s room for a number of rivals, in our view. Alibaba’s largest competitor reported over 10 million orders placed on Singles’ Day, nearly twice the amount of orders placed on Singles’ Day 2014. JD.com did not disclose a GMV figure.
2015 marks a year in which Alibaba has placed considerable focus on its international e-commerce potential, with respect to Singles’ Day in particular. Though Singles’ Day hasn’t caught on in the US and in many other countries in a big way, the runway of potential is long, in our view, and international adoption could be a source of upside in coming years; it might be needed for the company to achieve the lofty growth goals set by its CEO. Management expects China to be the world’s largest e-commerce market for imported goods in the next five years, and while anti-corruption campaigns may mitigate expansion in the near term, the global thesis is important to our view of the company, which is long-term oriented.
The success of Singles’ Day for Alibaba speaks to the size and influence of the company. The fact that it has been able to turn a local “anti-Valentine’s” holiday into a $14+ billion GMV generating day in just 6 years is simply incredible. The comparisons are hard to believe: though Alibaba’s margins on GMV are rather slim, total Alibaba Singles’ Day Sales in 2015 were greater than last year’s annual sales at Viacom (VIA) and Facebook (FB) and even the GDP of Laos. We expect Singles’ Day to be an influential day for all Chinese e-commerce companies for years to come, and the shopping phenomenon may expand far beyond the country’s borders in coming decades. Though the spending spree on November 11 has yet to catch on in the US, if the US were to move the “new tradition” to November 10 or November 12, circumventing the Veterans Day holiday, it might receive greater adoption in the country.
All things considered, Singles’ Day was a resounding success for Alibaba, as the firm achieved its target of a 50%+ growth rate in GMV from the previous year. We think that the selloff in shares that followed may have been a result of some profit taking from those who entered the stock at its lows in late September (CEO Jack Ma offered some cautious comments regarding the Chinese economy in 2016 as well, which could have led to some de-risking). We continue to believe that shares of Alibaba offer a material valuation opportunity, and we currently value them at nearly $140 each. Alibaba represents core international exposure, in our view, but the firm may only fit well in a diversified portfolio like the one in the Best Ideas Newsletter. We continue to be patient.