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Alibaba wants its US$18b Singles' Day to be more, mean less
[NEW YORK] Alibaba Group Holding Ltd reported a whopping US$17.8 billion of sales during its online shopping bonanza Singles' Day. But it doesn't want you to focus on that number.
That's because billionaire Chairman Jack Ma thinks pure e-commerce businesses are going to face tremendous challenges in the future, as online shopping becomes the new normal.
While sales on Singles' Day grew 60 per cent to 91.2 billion yuan (S$18.88 billion) in 2015, the increase this year was about half that rate, leading some analysts to call the event a slight disappointment.
"It's highly unlikely we'll continue to grow at 60 per cent each year because the absolute numbers are becoming so large," Alibaba President Mike Evans said in an interview with Bloomberg TV.
That staggering US$17.8 billion is gross merchandise volume (GMV), or the monetary value of Friday's transactions through Alibaba's services. Investors and analysts have become increasingly skeptical of the number, which isn't defined under accounting standards and doesn't include products returned. The US Securities and Exchange Commission is currently investigating how the e-commerce giant reports numbers from the Singles' Day promotion.
The GMV results aren't as indicative of Alibaba's growth as investors may think, according to Marshall Meyer, a management professor at the University of Pennsylvania's Wharton School, who likened the value to "water through a pipeline".
The numbers don't reflect Alibaba's profit, as the company mainly makes money through advertising purchases by merchants who use its sites. As critics of the GMV calculations have grown, the Chinese e-commerce giant has tried to downplay the figure and it recently stopped reporting the value every quarter.
"It doesn't represent our true identity, and overemphasising it makes people just think about e-commerce," Mr Ma said on stage at the countdown gala.
Hangzhou, China-based Alibaba has been recasting itself as more than just an online shopping hub by investing in cloud computing and entertainment, spending billions of dollars on media assets like Youku Tudou, to generate new growth in the face of China's slowing economy.
The company has started to establish itself in Hollywood, backing movies like the latest film in the Mission Impossible franchise. In the US, Alibaba has invested in startups ranging from Magic Leap to Snap Inc, the company behind Snapchat.
Sales from its digital media and entertainment division quadrupled to 3.6 billion yuan - or almost 11 per cent of the company's revenue in its most recent quarter.
"They're on the treadmill they've created. They need to create a new paradigm and way of measuring success," said Duncan Clark, founder of investment advisory firm BDA China and an early adviser to Alibaba.
"You will approach a point at which Chinese consumers are sated."
Creating a Phenomenon
The extravagant fanfare of events leading up to Singles' Day - which can be thought of as Cyber Monday and the Super Bowl halftime show on steroids - reflects how Mr Ma sees the identity of the company and its wide-ranging strategy. Singles' Day, a twist on Valentine's Day, started in the 1990s as an obscure holiday, but has snowballed into a Chinese consumer phenomenon since Alibaba turned it into a one-day online sales extravaganza in 2009.
The e-commerce giant live-streamed its countdown gala, where stars from actress Scarlett Johansson to retired basketball player Kobe Bryant took the stage to draw in millions of eyeballs.
Though the transactions are made on one day, Alibaba rolled out activities a month earlier to get products pre-loaded into consumers' shopping carts. On Oct 23, Alibaba live-streamed an eight-hour fashion show during which viewers could pre-order clothes on the website as models walked down the runway. It also released an augmented reality mobile game in which consumers followed a "Tmall Cat" mascot to merchants to earn discounts and prizes. That's why gross merchandise volume spiked to US$1 billion within the first five minutes on Friday.
Management at Alibaba has said repeatedly that the company is more than the Amazon.com Inc of China and uses Singles' Day to highlight its varied business interests.
"This all reinforces the value proposition Alibaba has," said Anthony Zackery, a portfolio manager at Seattle, Washington-based Zevenbergen Capital Investments LLC, which holds about 30,000 shares in Alibaba, according to data compiled by Bloomberg.
"It's hard because I could just look outside my office window and see Amazon's campus. With Alibaba being across the Pacific, it's distant."