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Alibaba extends its reach in China as coronavirus outbreak opens doors

By
Reuters API
Published
May 28, 2020
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Alibaba Group Holding Ltd is emerging as one of China's biggest corporate winners of the coronavirus crisis, gaining the opportunity to expand its businesses and solidify its status as a critical part of the country's socio-economic engine.


Reuters


While many companies are hurting from disruption caused by the virus, Alibaba has seen traffic at its online marketplaces shoot higher and demand grow for services like food delivery. Local authorities have even turned to its cloud business to build health-tracking apps.

The company, which emerged as China's leading e-commerce company after the 2003 SARS outbreak, is now positioning itself as a hirer and a lender too, advertising for over 100,000 jobs and offering billions of dollars in loans to small and mid-sized enterprises (SMEs) at a time when many others are retrenching.

Such moves have further embedded the firm in the lives of consumers, arguably more so than rivals like Tencent Holdings Ltd or JD.com Inc , which are trying similar initiatives but have narrower offerings.

"That's a classic gangster strategy: When the market pulls back, one company doubles down, and then when it returns, you have the whole market," said Jeff Towson, a professor of investment formerly at Peking University.

"It's something I haven't seen ... any other company do at that scale," he said of Alibaba's plan, announced in March, to lend $282 billion to SMEs in 2020.

It is pattern being repeated in the United States, where technology giants Amazon.com Inc and Microsoft Corp have been able to weather the coronavirus storm better than smaller peers and concurrently reinforce their position, not only in the market but in the fabric of society itself.

But that also signals that big tech companies like Alibaba are only going to get bigger, potentially stifling smaller firms, analysts said.

To be sure, it is not all good news for Alibaba. E-commerce growth is slowing overall, with the company posting a loss of $1.09 billion on the value of outside investments in its most recent quarter during which the virus impact was most acute.

Still, online merchants said Alibaba was able to use the crisis to pull further ahead of newer rivals like Pinduoduo Inc , building on earlier moves to promote services like livestreaming which soared in popularity with both users and merchants due to travel curbs.

Alibaba on Friday reported increases of 21% in quarterly revenue and 19% in core commerce sales, beating expectations. Its executives had predicted in February that the virus would cause sales to drop.

"After the virus, there's nowhere for offline vendors to go but online," said Josh Gardner, who operates online store fronts for overseas brands at Kung Fu Data.

"Alibaba has a dominant position on JD.com except for a few electronics categories, and Pinduoduo is mainly for low-margin goods."

Pacific Epoch analyst Steven Zhu said Alibaba's food delivery arm Ele.me was able to catch up with dominant peer Meituan Dianping during the virus, mainly by offering discounts which both had previously pulled back on.

Ele.me's daily active users rose to roughly 15 million from 10 million, while Meituan's increased to 17 million from 15 million, showed data from researcher Analysys.

The company has also beefed up through laid off restaurant and retail workers. Its Kaola imported-product platform, supermarket arm Hema and Ele.me together said they have hired, or are hiring for, as many as 140,000 roles.

Gao Daoxiang, 20, told Reuters he joined Ele.me as a driver in April when the hotpot restaurant he had worked for did not reopen after restrictions were lifted.

"I know a lot of people who can't find work," he said, "So their friends are introducing them to these apps."
The virus has also been a shot in the arm for emerging business lines outside of e-commerce such as cloud-computing, where revenue grew 58% in January-March.

Its workplace messaging app Dingtalk saw downloads through Apple's App Store increase over 1,000% in February as work and schooling shifted to home computers, showed data from SensorTower. It is now a leader in a category vied for by social media leaders Tencent and ByteDance.

Analysts said the virus and Alibaba's strengthening position were likely to reinforce trends that worry some in China and elsewhere.

Ele.me, for example, is accelerating the rise of the gig economy, which often provides less stable employment. DingTalk is ushering in the age of remote work, and has raised hackles among some users for enabling employers to closely monitor worker activity.

Katt Gu, who tracks China's internet sector at Shanghai-based consultancy Sujitech, said the trend could make it even harder for smaller startups to compete in a landscape dominated by a few giants.

"All of those companies, when they get a little big and get noticed by Alibaba, they just get bought - so they never get a chance to become big companies," she said.
 

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