How Does Alibaba Make Money? Business Model Explained!

Founded in 1999, Alibaba Group is a comprehensive group of companies that mainly provides Internet services in mainland China. The company currently has two headquarters in Hangzhou, Shanghai, and Beijing. Alibaba was founded by Jack Ma in Hangzhou after he climbed the Great Wall in Beijing.

Alibaba’s services include B2B commerce, online retail, shopping search engines, third-party payments, and cloud computing services. 

The group’s subsidiaries include Alibaba B2B, Taobao, Tmall, Yitao.com, Alibaba Cloud Computing, Juhuasuan, AliExpress, Alibaba International Marketplace, Ele.me, Fliggy, Youku, Hema Fresh, Alibaba Pictures, Cainiao Network, AutoNavi, Lazada, Daraz, etc.

The revenue of Taobao and Tmall reached 1.1 trillion yuan in 2012, and the total goods transaction volume in 2015 exceeded 3 trillion yuan, making them the largest retailer in the world.

In the fiscal year ended September 2012, Alibaba’s revenue under U.S. accounting standards increased 74% year-on-year to 31.839 billion yuan and profit increased 80% to 3.775 billion yuan. For the full year of 2015, Alibaba’s revenue was US$14.601 billion and its net profit was US$7.494 billion. 

According to the IPO prospectus filed by Alibaba Group with the US Securities and Exchange Commission in 2017, Yahoo held 22.6% of Alibaba Group, Softbank held 34.4% of Alibaba Group, and management, employees and other investors held a total of 22.6% of the shares. About 43%, of which Jack Ma holds about 8.9% of Alibaba Group and Cai Chongxin holds 3.6%.

In November 2019, Alibaba Group was listed on the Hong Kong Stock Exchange for the second time. The Hong Kong financial community named Alibaba, Tencent (HKEx: 700), Meituan Dianping (HKEx: 3690), and Xiaomi (HKEx: 1810) the first letter of the English names of the four mainland Chinese technology stocks, collectively known as “ATMX” stocks.

On November 26, 2019, Alibaba Group was listed on the Hong Kong Stock Exchange and is the “new king” of Hong Kong stocks with a total market value of over 4 trillion yuan. In August 2020, the total market value of Alibaba Group shares in Hong Kong exceeds 6 trillion for the first time.

On April 10, 2021, Alibaba Group was fined RMB 18.228 billion by the State Administration for Market Regulation of China for its monopoly.

What Does Alibaba Do?

Alibaba operates in more than 200 countries and territories and is the world’s largest retailer, one of the largest Internet and artificial intelligence companies, one of the largest venture capital firms, and one of the largest investment firms in the world.

The company operates the largest B2B (Alibaba.com) and B2C (Taobao, Tmall) marketplaces in the world. Its online sales and profits have surpassed all retailers in the United States (including Walmart, Amazon, and eBay) combined since 2015. The company has established itself in the media industry, posting record sales that have tripled year over year.

The company also made Singles Day in the People’s Republic of China the world’s largest online and offline shopping day in 2018. 

The final total on Alibaba’s platform was $30,802,477,608, up about 27% from last year’s total record. at the exchange rate at the time. This is less than the record 40% increase in the previous year, 2017.

Alibaba Business Segments

In the fourth quarter of FY 2021, Alibaba reorganized its reporting structure. The number of reportable operating segments went from four to seven. These are the segments:

  • China Commerce
  • International Commerce
  • Local Consumer Services
  • Cainiao
  • Cloud
  • Digital Media and Entertainment
  • Innovation Initiatives and Others

The company provides a segment-by-segment breakdown of revenue and adjusted EBITDA. There are also unallocated items reported by the company, which are primarily corporate administrative costs and miscellaneous expenses not allocated to the company’s segments. 

China Commerce

Taobao, Tmall, Taobao Deals, Taocaicai, Tmall Supermarket, Tmall Global, Freshippo, Alibaba Health, and Sun Art are among Alibaba’s China commerce businesses. In addition to its wholesale business, 1688.com is included in this segment.

As a result of the China commerce segment, revenue in Q4 FY 2021 was $27.0 billion, up 6.8% from the year-ago quarter. The adjusted EBITA fell 19.7% year over year to $9.1 billion. Almost 71% of the company’s revenue and almost all of its adjusted EBITA come from this segment.

International Commerce

Alibaba’s international commerce segment consists of its international retail and wholesale businesses, such as Lazada, AliExpress, Trendyol, Daraz, and Alibaba.com.

In Q4 FY 2021, international commerce revenues increased 18.2% YOY to $2.6 billion. The segment’s adjusted EBITA was $458 million, which is more than double the adjusted loss recorded in the year-ago quarter. The segment contributes about 7% to companywide revenue.

Local Consumer Services

Alibaba’s local consumer services are mainly focused on location-based services such as Ele.me, a local services platform that offers on-demand delivery; Amap, a provider of digital maps, navigation, and traffic information; Fliggy, an online travel platform; and Taoxianda, a platform that helps retailers open online stores.

In Q4 FY 2021, local consumer services reported revenues of $1.9 billion, an increase of 27.3% year-over-year. The adjusted EBITA loss increased by 15.3% compared to the year-ago quarter’s adjusted loss. About 5% of Alibaba’s revenue is generated by this segment.

Cainiao

Cainiao is Alibaba’s one-stop-shop for domestic and international logistics services and supply chain management solutions. Merchants and consumers can use it to meet their varying logistical needs on a scale.

In Q4 FY 2021, the Cainiao segment generated revenues of $2.1 billion, an increase of 15.1% YOY. Adjusted EBITA in the segment was -$14 million, more than two and a half times narrower than adjusted EBITA in the year-ago quarter. Over 5% of companywide revenues come from this segment.

Cloud

Alibaba’s cloud business consists of two segments: Alibaba Cloud, a provider of a full suite of cloud services worldwide, including database, storage, network virtualization, security, management, and application services, as well as DingTalk, a mobile platform for enterprises.

In Q4 FY 2021, the cloud segment reported revenue of $3.1 billion, an increase of 20.4% over the previous year. A $21 million adjusted EBITA was reported, a significant improvement from the loss of an adjusted EBITA reported in the year-ago quarter. It accounts for approximately 8% of total revenue and a small percentage of total adjusted EBITA.

Digital Media and Entertainment

Alibaba’s digital media and entertainment segment consist of Youku, an online long-form video platform for viewing and sharing video content on multiple devices; Alibaba Pictures, an Internet-based platform for content production, promotion, and distribution, intellectual property, licensing, and integrated management; and the company’s other content platforms and online games.

The digital media and entertainment segment generated revenues of $1.3 billion in Q4 FY 2021, an increase of 0.4% year over year. This is a slightly narrower adjusted EBITA loss than the year-ago quarter of -$216 million. Revenue from this segment accounts for over 3% of Alibaba’s revenues.

Innovation Initiatives and Others

Alibaba’s innovation initiatives and other segments include Tmall Genie, which offers smart home appliances such as smart speakers, lights, and remote controls connected to the Internet of Things, and DAMO Academy, a global research program that integrates scientific innovations with industrial applications.

In Q4 FY 2021, the innovation initiatives and others segment reported revenue of $163 million, an increase of 63.1% year over year. Segment EBITA was -$252 million, a 54.6% decrease over the year-ago quarter. The segment accounts for only a small portion of the company’s revenue.

Alibaba Recent Developments

On March 18, 2020, in the wake of the stock market crash triggered by the global epidemic of novel coronavirus pneumonia, Alibaba’s IPO price fell below HK$175 for the first time, closing at a daily low of HK$173.

On the evening of November 3, 2020, the Shanghai Stock Exchange decided to suspend the listing of Ant Technology Group Co., Ltd. on the Science and Technology Innovation Board. The Hong Kong Stock Exchange also issued a statement that night suspending the listing of Ant Group’s H shares.

According to the Wall Street Journal, it was Xi Jinping, the General Secretary of the CCP Central Committee, who personally ordered the blocking of Ant Group’s IPO after Ma Yun’s speech.

In December 2020, Alibaba Group Holding Co, Ltd. was investigated by China’s State Administration of Market Regulation, a market regulator, for suspected monopolistic behavior, such as “choosing one out of two.”

In February 2021, Alibaba (China) Co., Ltd. was awarded the “National Advanced Group for Poverty Alleviation” at the National Poverty Alleviation Summary and Commendation Conference on February 25, 2021.

On April 10, 2021, the State Administration for Market Regulation issued an announcement on its official website, confirming Alibaba’s “choose one” monopoly in the online retail platform service market, and decided to fine 4% of the previous year’s sales, or 18.228 billion yuan, and issued an “administrative guide” requesting rectification, submitting a “self-inspection compliance report” in three years, and Alibaba’s official website issued a communique expressing “sincere acceptance and resolute obedience”.

Alibaba Group and Affiliates 

Alibaba Network Co, Ltd. is the flagship company of the Alibaba Group. It was founded in 1999 by Jack Ma and 18 others and mainly operates a B2B (business-to-business) online trading platform for small businesses. It is currently the world’s leading company in terms of the number of users. small business e-commerce company.

Alibaba currently operates four online marketplaces that help small businesses around the world find business partners.

The four online marketplaces include an international marketplace (alibaba.com) that serves global importers and exporters, a Chinese marketplace (1688.com) that focuses on domestic trade, and a Japanese marketplace (alibaba.co.jp) that promotes Japanese exports and domestic sales. ), and AliExpress (aliexpress.com), a global wholesale platform for small buyers. As of March 2011, the four online marketplaces together had more than 65 million registered users.

Alibaba also provides business management software, Internet infrastructure services, export-related services, and credit services to companies in mainland China, as well as training services for executives and e-commerce experts through Alibaba Academy.

Since November 2010, Alibaba has cooperated with the U.S. Commerce Service (U.S. Department of Commerce), the Hong Kong Trade Development Council, and the International Trade Website (English: GlobalTrade.net).

Alibaba Scandals

​​Since 2012, Alibaba Group has begun to invest heavily in media, including Momo, Sina Weibo, Huxiu, Culture China Media Group ( Jinghua Times ), Youku Tudou, Guangguang Media, Sichuan Daily Group, Mango TV, South China Morning Post, etc., and has successfully built a powerful “PR mouthpiece”. And Alibaba also keeps interfering with the invested media.

On the group’s Hangzhou campus, there is a special police officer through whom the police can request data from Alibaba for investigation and use the information database the company has set up on e-commerce and financial payment networks.

On December 24, 2020, the State Administration for Market Regulation launched an investigation into Alibaba Group’s “choose one from two” and other alleged monopolistic behaviors.

Alibaba’s share price fell more than 15% when the market opened that day, and the company’s market value decreased by more than $110 billion.

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