Alibaba takes a double hit in Live-streaming and Cloud
1. $Alibaba(BABA.US$ $BABA-SW(09988.HK$ Alibaba's woes keep coming. It probably gets a lot more stick than any other Chinese companies for the past 1 year.
2. China's top live-streamer, Viya, has been fined a record US$210m for tax evasion. Mind you this is one person and not a corporation. Yes, she is reportedly a billionaire and should be able to afford the fine but I don't see the rich get such hefty fines in other countries. Besides the fine, her livelihood was taken away as she was cancelled on social media platforms - her account on Taobao and Weibo have been suspended.
3. She was not the only one as many other live-streamers like Li Jiaqi (Lipstick King) and Cherie were fined too. This seems like a broader crackdown on the celebrity scene as a few other actors/actresses and pop stars have been cancelled too. Some of the stars have pledged loyalty to China by renouncing their foreign citizenships.
4. Why is China doing this? There are many speculations which could fill another post. I'll give one here: celebrities have a lot of influence in shaping the thoughts of the masses and China wants to control them so that the stars could present the desired values. Getting rid of 'sissy men' from the screens and commenting on Wang LeeHom's case are further examples.
5. But let's come back to Alibaba. I have always thought live-streaming is a super powerful way to push sales on ecommerce platform. I remember myself watching off-peak TV informercials when I was a kid and how captivated I was listening to a salesman pitching wares at a local market. Live-streaming is even more powerful because you have celebrity influencers promoting numerous products regularly at scale. You can choose who to follow and buy things with a click of a button. Amazon has since copied the idea.
6. Taobao was clearly a leader in this aspect with 60% market share in live-streaming sales in China. Viya and Lipstick King, the top two live-streamers in China as both onboard Taobao. Both sold $3.7 billion in GMV during 2021 Singles’ Day campaign and that's 4.4% of the total GMV.
7. The clampdown on live-streaming is going to hurt Alibaba more than any other competitors considering the commanding market share currently. This would also clip the wings of the already slowing ecommerce growth due to competition. That said, the environment has also been tougher for every player. It might just be a stalemate situation in the competitive landscape in the near future.
8. The second impact is on Alibaba's cloud business. The Chinese Government just suspended its partnership with Alibaba as a cybersecurity threat intelligence partner for 6 months due to Alibaba's failure to report a vulnerability. The continuation of the partnership will be reassessed later depending on the correction measures.
9. The Chinese Government has ordered state-owned enterprises to move their data to state cloud platforms by next year. But it is unlikely that the government will run an entire new cloud infrastructure. It is just cost inefficient and less agile to do it internally. Experts believe that the cloud technology know-how will still be provided by third party vendors.
10. Alibaba leads the cloud in China with a 38% market share. Huawei Cloud and Tencent Cloud are behind at 17% and 16.6% share respectively. Any big changes to the cloud business for the government and the state-owned enterprises should hit Alibaba harder.
11. Basically, the valuation of Alibaba is expected to come down due to these headwinds but down by how much remains an unknown because we do not know the true impact to Alibaba's businesses. Investors are likely to price Alibaba unfavourably for some time.
2. China's top live-streamer, Viya, has been fined a record US$210m for tax evasion. Mind you this is one person and not a corporation. Yes, she is reportedly a billionaire and should be able to afford the fine but I don't see the rich get such hefty fines in other countries. Besides the fine, her livelihood was taken away as she was cancelled on social media platforms - her account on Taobao and Weibo have been suspended.
3. She was not the only one as many other live-streamers like Li Jiaqi (Lipstick King) and Cherie were fined too. This seems like a broader crackdown on the celebrity scene as a few other actors/actresses and pop stars have been cancelled too. Some of the stars have pledged loyalty to China by renouncing their foreign citizenships.
4. Why is China doing this? There are many speculations which could fill another post. I'll give one here: celebrities have a lot of influence in shaping the thoughts of the masses and China wants to control them so that the stars could present the desired values. Getting rid of 'sissy men' from the screens and commenting on Wang LeeHom's case are further examples.
5. But let's come back to Alibaba. I have always thought live-streaming is a super powerful way to push sales on ecommerce platform. I remember myself watching off-peak TV informercials when I was a kid and how captivated I was listening to a salesman pitching wares at a local market. Live-streaming is even more powerful because you have celebrity influencers promoting numerous products regularly at scale. You can choose who to follow and buy things with a click of a button. Amazon has since copied the idea.
6. Taobao was clearly a leader in this aspect with 60% market share in live-streaming sales in China. Viya and Lipstick King, the top two live-streamers in China as both onboard Taobao. Both sold $3.7 billion in GMV during 2021 Singles’ Day campaign and that's 4.4% of the total GMV.
7. The clampdown on live-streaming is going to hurt Alibaba more than any other competitors considering the commanding market share currently. This would also clip the wings of the already slowing ecommerce growth due to competition. That said, the environment has also been tougher for every player. It might just be a stalemate situation in the competitive landscape in the near future.
8. The second impact is on Alibaba's cloud business. The Chinese Government just suspended its partnership with Alibaba as a cybersecurity threat intelligence partner for 6 months due to Alibaba's failure to report a vulnerability. The continuation of the partnership will be reassessed later depending on the correction measures.
9. The Chinese Government has ordered state-owned enterprises to move their data to state cloud platforms by next year. But it is unlikely that the government will run an entire new cloud infrastructure. It is just cost inefficient and less agile to do it internally. Experts believe that the cloud technology know-how will still be provided by third party vendors.
10. Alibaba leads the cloud in China with a 38% market share. Huawei Cloud and Tencent Cloud are behind at 17% and 16.6% share respectively. Any big changes to the cloud business for the government and the state-owned enterprises should hit Alibaba harder.
11. Basically, the valuation of Alibaba is expected to come down due to these headwinds but down by how much remains an unknown because we do not know the true impact to Alibaba's businesses. Investors are likely to price Alibaba unfavourably for some time.
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antossiu : ccp really hate it so hard
momomoomoo : Those top influencer are paid high margin and not much meat left for the companies. So removing such influences may lead to increased profit for the companies?
103094266 momomoomoo: How would company earn money if no top influencer to sell their product? Without those popular influence, company profit will drop tremendous.
BeContrarian momomoomoo: But without the influencers, sales would be greatly reduced, I think companies will lose out in the end...
丁蟹NA BeContrarian: It is quite the opposite, influencer having all the traffic, which make other shop owner not willing to open shops on taobao. Alibaba makes money from setting up shops not selling products. last 11/11 demo it perfectly, only top 2 made huge profits, which upset a lot of small shop owners.
momomoomoo 丁蟹NA: Yes, if you only got $100 and you spent it via the influencer, it meant you got less $ to spend on the e-shops. And if you reduce the power of the top influencers, then other influencers can step up with more competition, reducing the margin and more profit for the companies hosting them.
丁蟹NA momomoomoo: It is more complicated than that. since the influencer has huge traffic. they could get deals from the supplier with lowest price possible. and they make sure buyer can not get a lower price anywhere esle. It is a quite complicated multilateral deal. How they make profits and avoid taxation is quite complied too.