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New Alibaba chairman's 1st investor day suggests more diversified future

In his first investor day since taking over from Jack Ma as Alibaba Group Holding Ltd. executive chairman, Daniel Zhang presented an upbeat view on the continuing growth of the company's domestic e-commerce business despite the slowing Chinese economy, and hinted at a greater emphasis on other business lines.

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Daniel Zhang, Alibaba CEO and executive chairman
Source: Alibaba

Zhang, who has been CEO of Alibaba since 2015, on Sept. 24 set a target for the company of more than 1 billion annual active users and over 10 trillion Chinese yuan in annual gross merchandise value through its domestic consumer business by the end of fiscal 2024. Based on the current Chinese population of about 1.4 billion, that means capturing roughly every 2 out of 3 people in China.

"We still see a high potential in many less-developed areas where we only have 40% penetration. So we will continue to invest and grow our user base, especially in the less-developed areas, but based on a strategy of differentiated product strategies," Zhang said during a livestreamed session held during the company's two-day gathering in Hangzhou.

Alibaba said it had 730 million annual active users in its China consumer business for the 12 months ended June 30, its global annual active users totaled 860 million. User penetration in urban areas was about 85%.

The company's core domestic e-commerce business includes the Tmall platform and Taobao marketplace, as well as the newly acquired cross-border e-commerce platform Kaola. The company also announced Sept. 24 that it completed the acquisition of a 33% stake in its digital payment arm Ant Financial Services Group.

Danny Law, an e-commerce analyst at brokerage Guotai Junan who attended the investor day, said that although Zhang's plans for the company more or less mirror those of his predecessor's, he appears to be more focused on Alibaba's future growth in areas beyond its e-commerce core.

"It's about how new businesses can steer the direction of the group, and less on whether the businesses can be profitable," Law said in an interview.

Beyond e-commerce, Alibaba's interests range from cloud computing to movie production. But Zhang highlighted Alibaba's map service Amap, also known as AutoNavi, as a particularly important area for the company.

"This map service is not only relevant to individual users, but highly relevant to many, many location-based services, to enterprises. And today, we are going to 5G and going to an internet-of-things era. I think going forward, this Amap infrastructure, this map and navigation service as an infrastructure is super important for future Alibaba," Zhang said.

Shawn Yang, deputy head and managing director of equity research provider Blue Lotus Research Institute, added that Zhang cut a reassuring figure to investors.

"Going by his background and personality, he is more practical. Unlike Jack Ma, he did not mention too much about the vision and prospect of the company," said Yang.

In a research note, Jefferies analysts Thomas Chong and Ken Chong warned that Alibaba is facing an unexpected slowdown in consumption amid macro-headwinds. The analysts said aggressive marketing in lower-tiered cities and undermonetized feeds on its e-commerce platforms would also be a concern for the company.

Yang said the investors present were also concerned about the monetization of Alibaba's new businesses, but the company appears to be more keen to generate traffic for growth.

Alibaba's shares fell 3% on Sept. 23, the first day of the investor day event, after news broke that the Hangzhou government has placed government officials in private companies based in Zhejiang province, including Alibaba, to facilitate better workflow.

Yang, who was present at the investor day session, said Alibaba executives addressed the news and that the government would not supervise the company's operations.

"It was not the main issue that the investors were concerned about. Rather, the audience was more interested about Alibaba's competition, growth in the lower-tiered cities and local services," said Yang.

CFO and head of strategic investments Maggie Wu, who also spoke at a livestreamed session, said revenue guidance remains unchanged at over 500 billion yuan for fiscal 2020.

According to Wu, the company's revenue has grown by more than seven times in the last five years, and Alibaba's performance in revenue growth has outperformed its global technology peers. She specifically compared Alibaba to Amazon.com Inc., which she said has not made a profit from its annual active users on its e-commerce business. (Amazon does not disclose profit figures for its retail business.)

"[The] most important thing is that our annual active users [AAC] is so unique. What's unique about it? Our AAC brings profits to us. To be exact, our consumer-facing business generated $17-plus billion of EBITDA, and profit per AAC is $20," said Wu.

However, Guotai Junan's Law said Alibaba and Amazon are not an apples to apples comparison.

"The population size between China and the U.S. is rather different. Likewise, the consumption power between Chinese and US consumers is different," said Law. "In the U.S., Amazon is the market leader without such a tough competition in the e-commerce field as in China."

As of Sept. 23, US$1 was equivalent to 7.12 Chinese yuan.