The fourth quarter of the year is always a big one for Amazon.com, Inc. (NASDAQ:AMZN) and Alibaba Group Holding Ltd (NYSE:BABA), though for different reasons. Amazon.com is the beneficiary of the swell of holiday gift-giving purchases, while Alibaba is the go-to middleman for China’s so-called Singles Day … a self-indulgent day of spending on yourself.
It begs the question for many current or prospective owners of BABA stock though: Just how big of a deal is Singles Day?
It’s huge (the specific number waits below), but not just for Alibaba anymore, and not just because Alibaba gets to sell tons of merchandise. This year’s Singles Day event will also be a chance for Alibaba CEO Jack Ma to put a new strategy to the test and simultaneously expand the company’s reach.
Singles Day and BABA Stock
For the record, Singles Day started out as something of a joke in 1993 when single students at Nanjing University felt they were being unfairly missing the special attention couples give one another on Valentine’s Day. The date for Singles Day is always Nov. 11, or 11/11, as the number one, of course, is by definition single. It’s also said that 11/11 evokes “bare branches,” a Chinese expression for single people.
With a little help from Alibaba back in 2013, Singles Day has since morphed into a nationwide shopping event, though Alibaba captures the lion’s share of the drummed-up business.
And this year is expected to be another doozie that BABA stock holders can get excited about. SunTrust Robinson Humphrey reckons the company’s gross merchandise sales volume could grow on the order of 35% year-over-year, from last year’s $17.8 billion to around $24 billion this time around.
For perspective, the United States’ Black Friday weekend only generated about $8 billion worth of e-commerce last year.
Ling Shou Tong
While the incredible sales growth has made and will make for riveting headlines, simple revenue generation isn’t the only thing Ma has on his mind anymore, nor is it the only matter BABA stock holders should chew on.
It has been in the works for a while, evolving, but Alibaba’s “new retail” platform is going to be put to the test in earnest this year. Namely, about a tenth of China’s 6,000,000 convenience stores will be selling goods online through Alibaba’s platform, and letting those stores fulfill any required shipping.
It’s not just a mere matter of being a middleman though, a la eBay Inc (NASDAQ:EBAY). The platform, called Ling Shou Tong — which more or less translates into “connect retail” — is an inventory management tool that lets each shop manage the procurement and sale of its goods, but also lets Alibaba see what goods can be found at any of the given stores.
It’s a bold and somewhat unusual idea, but one that provides a massive amount of consumer purchasing behavior to Alibaba (which is what it really wants) at the same time as it brings more retailers into the ecosystem.
Not unlike its U.S. counterpart Amazon, Alibaba is entering new ventures perhaps without really knowing what the end goal is, but knowing that having such partners in place (think Amazon’s purchase of Whole Foods) will offer Alibaba lots of options in the future … including ones not even yet envisioned.
In that light, 2017’s Singles Day could mark something of a pivot point for the company’s business model.
Bottom Line for Alibaba
By the time you read this, the Singles Day event may be over, with slightly different numbers being reported than the forecasted ones touted above. It doesn’t entirely matter, though — it’s a massive day for Alibaba’s top line, and though to a lesser extent, it certainly doesn’t hurt the bottom line. Indeed, it wouldn’t be overstating the matter to say a strong showing on the all-important day can salvage a so-so year for China’s e-commerce giant, while a disappointing Singles Day could sour an otherwise fruitful year.
Whatever this year’s outcome is for the Nov. 11 e-commerce explosion, it’s a day all current and would-be owners of BABA should keep a close eye on, if for no other reason than the fact that it’s a barometer of the things Alibaba is doing right and wrong.
Perhaps more than anything though, it’s a reminder to judge and appreciate Ma’s latest brainchild, which may end up being an even bigger deal than Singles Day itself.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.