With meager market share and competition from Amazon, you might have a hard time justifying the investment
Alibaba’s quest for growth outside of China is increasingly urgent. It hopes to offset weak demand at home with expansion in Europe through its Southeast Asian subsidiary, Lazada. But you might have a hard time justifying the investment.
It expects to enter only 28,000 million euros until March, which represents a downward record of 6% more than the previous year. More curves are coming: lockdowns have hit consumption, and transactions on Alibaba’s flagship portal Tmall fell 13% year-on-year in April, according to YipitData.
The national slowdown gives a new impetus to look abroad. Despite taking control of Singapore-based Lazada in 2016, along with global collaborations with Richemont and others, domestic revenue contributed 67% of its sales in April-September, compared to 7% from abroad.
Still, Europe, where Lazada is making a big push, is a surprising choice. Alibaba has been there for more than a decade, with AliExpress. In 2021 it only had a 4% share in Western Europe, far behind Amazon’s 20% share, according to Euromonitor. In Eastern Europe, its 5% is also behind Russia’s Wildberries and Poland’s Allegro.
At the same time, competition intensifies in Southeast Asia. Revenue growth for Lazada, which in 2020 named its third CEO in three years, slowed from the triple-digit pace of a year earlier to 52% in October-December, as rivals such as Sea-owned Shopee, They take away market. The Thai military’s boycott of Lazada for allegedly mocking the royal family in an ad may further jeopardize growth.
It is unclear how much the European spin will cost. Lazada recently issued €350m worth of new shares for its parent company, but building a logistics network in the region to take on Amazon will likely require more resources. With Alibaba down 30% on the stock market this year, and its multiple at new lows, investors have reason to believe there are better destinations for their money.
