(9 Pages, 9 graphs and tables)
Listen to analyst’s audio summary

• We notice the pessimism on BABA has hit a new high, just like pessimism on Tencent hit a new high in 2018.
• We believe the clash from new social eCommerce platforms is exaggerated and investors have underestimated the potentials of DingTalk and AliCloud. We further believe BABA’s offline business is an asset, not a liability.
• We reiterate BUY on BABA and raise TP to US$281

Major concern goes with BABA’s online retail
BABA’s online retail revenue is divided into two parts: customer management revenue (CMR)/advertising and commission, reflecting two user demands: browse/online shopping and transactions. Both demands are facing increasing competition: 1) The new rising traffic platforms, especially Douyin and Kuaishou, are helping customers to “discover” products. 2) By offering low take rate and aggressive subsidy, PDD is becoming an option for eCommerce transaction. For an extended period, BABA has been vigilant about new front-end traffic pool, and has been involved in battles with a long list of potential competitors, like Taobaoke (or individual Taobao Agency), Baidu, Weibo, Tencent, etc. But now BABA is facing a much more complicated situation: 1) DAU of Douyin and Kuaishou has reached more than 700 mn, almost 70% of total China internet users; 2) eCommerce infrastructures like logistics, payments, and eCommerce merchants, are well-developed, so agencies and third party service providers could quickly help any platform with extra traffic to start an eCommerce business; 3) China’s retail market is transforming from a seller’s market to a buyer’s market, which means there is an oversupply of products. Hence, platforms with extra traffic have been gaining more bargaining power.(TBC)

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