Alibaba trade idea

The Covid-19 pandemic is both a crisis and an opportunity. It created a best opportunity for consumer adoption of a broader digital lifestyle and the shift to online purchase of daily necessities.

Alibaba achieved its historic milestone of USD 1 trillion in Gross Merchandise Volume in the FY 2020. Further more, the large customer base of Alibaba has grown even bigger, achieving a record of 960 million active customers globally in the past year. Under China’s lockdown and social distancing measures between January and March 2020, Alibaba has encouraged more offline merchants to go online, and improve Taobao’s shopping experience and platform functions. Alibaba’s Ant Financial has also implemented a set of financial and business support to ameliorate the financial conditions and challenges faced by its merchant and business partners. Under the aforementioned strategic adjustment and targeted financial help, Alibaba’s revenue in Q4 has increased by 22% (YOY), the net income slump (down 88% YOY) in Q4 was primarily due to the equity investment loss of listed securities, the overall core business of Alibaba is actually still running very well and shows strong resilience under the pandemic and 2020 Q1.

New Retail: Strong revenue growth in the grocery brand “Freshippo” and “Taoxianda”shows Alibaba’s business has successfully entered the consumer staples sector. Consumers’ migration to online purchasing of fresh goods and daily necessities is becoming another revenue driving force in Alibaba’s digital economy.

Consumer discretionary industry has been seriously impacted due to the pandemic. On the contrary, consumer staples sector is still thriving. In order to seize this opportunity, in FY 2020, Freshippo changed to direct procurement of agricultural products and established a nationwide cold chain logistics network in order to support the growth of daily fresh meat and vegetables demand . As of March 31, 2020, Alibaba had 207 self-managed Freshippo stores in China, primarily located in the developed Chinese tier one and tier two cities. The building of cold chain logistics network is such an important strategic move and enables Alibaba to adapt very rapidly to the new reality caused by Covid-19. The success of Freshippo and Tanxianda has shown that Alibaba’s network has become more comprehensive as it not only covers consumer discretionary products, but more importantly, the grocery and daily necessities sectors.

Online engagement and entertainment prevails under the stay-at-home mode, Alibaba’s Taobao platform adds more entertainment elements in the customer-merchant interactions

Considering the foreseeable consumption decline brought by social distancing and lockdown measures, Alibaba adopted a similar strategy as Tencent, namely increasing the time spent per user in its Taobao platform. In 2020 Q1, the Taobao app has enabled merchants to engage with consumers through live-streaming, short-form videos, interactive games and microblogs in a more frequent basis. In the FY 2020, GMV generated from live-streaming grew over 100% YOY and daily active merchants using livestreaming on Taobao Live grew 88% YOY.

FY2020 Alibaba Segment Performance

We remain positive for Alibaba’s fundamental and profitability. Alibaba has always surprised investors by its strong execution capability, even when under going great uncertainty.

The most conspicuous success Alibaba has made during the pandemic is to let customers embrace the new digital online lifestyle. The migration of fresh food and daily necessities to Alibaba’s online platform and the broad logistic network has greatly facilitated customers’ grocery purchase. Under its new digital and online consumption mode, Alibaba is able to attract a broad group of customers, ultimately resulting in the development of its cloud computing and automatic logistics businesses. Alibaba’s future growth can be supported by its second-to-none platform, huge customer base and comprehensive coverage of merchandise products.

Possible risks

The global economy is likely to enter a mid-to-long term recession and more ugly economic data may be on the way in the coming half year. if the global risk assets have a second slump like March, Alibaba’s share price may experience an alike fall.

A second wave of the virus is still possible and the lockdown and social distancing measures are likely to be put in place again. This will definitely impact on consumption and consumer buying, resulting in Alibaba’s worse performance in future.

How to manage risk?

Investors should set a percentage to stop loss (typically to be 10% of the buying price). If the short term moving average line (e.g. 20-day) cross from above the long term moving average line (e.g. 60-day), it is possible that the stock price will continue to drop. It is strongly recommended to stop loss in a timely manner.