Alibaba: en-route to greatness or disaster? By Devansh Sachdeva

Alibaba, Chinese e-commerce giant, has started showing recovery signs as stock prices increase steadily after the steep downfall in mid-December. With stock prices (NYSE: BABA) falling as low as US$ 130.60 in December 2018, the company has revived itself and beat analysts’ forecast to reach a healthy US$ 166.82. Despite revenues falling to a threw year low, Alibaba was able to deploy strategies that helped it come out of a down quarter.

 

The victim of a slowing Chinese economy and the ongoing US- China trade war, Alibaba has decided to counter their declining revenue by increasing expenditure. The increased expenditure has been linked to long-run plans of raising revenues and net income. In 2018 alone, Alibaba spent US$41.8 billion on product development, sales and marketing, administration and cost of revenue. Nomura research analysts have maintained that these expenditures will help Alibaba generate revenue in the coming fiscal quarters and in the coming years invest further in strategic businesses like their idea of making cloud computing their main line of business.

 

Cloud-computing, an area which has been on the rise for a very long time, is also on Alibaba’s radar. IBM, with the acquisition and help of Red Hat, will be entering this line of business too, making it a heavily competitive industry. Using revenues from its retail businesses, Alibaba will be looking to differentiate their product from the current industry standard. The expenditure on cloud computing will be a starting point from which Alibaba will build on in the years to come to become a cloud-computing giant as CEO Daniel Zhang expects to be the case.

 

Alongside cloud computing, food delivery platforms and digital entertainment are on the rise when it comes to revenues. A considerable part (around $3 billion) of this massive expenditure has been invested in a food delivery platform called Ele.me, which was previously merged with Koubei, a local services guide, due to price wars, and online video service Youku.

 

Investments into R&D, product development and different business areas will help Alibaba grow their e-commerce ecosystem, help them become the biggest business conglomerate and will be able to offer all sorts of services to consumers around the world. However, this also raises the issue of a monopoly in the making. If Alibaba starts offering all services and acquires new competition, they will be eliminating competition and a lot of talent in the Chinese tech sector will go unnoticed. Nevertheless, Alibaba represents the new Chinese economy where a small number of firms dominate revenues and profits.

 

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