Tech

David Fickling is a Bloomberg Gadfly columnist covering commodities, as well as industrial and consumer companies. He has been a reporter for Bloomberg News, Dow Jones, the Wall Street Journal, the Financial Times and the Guardian.

Just how much bigger can Alibaba grow? Worried investors who've driven the stock down about 18 percent this year appear to be saying, not that much.

The company founded by Jack Ma is already remarkably dominant. Gross merchandise volume, a measure of all transactions carried out over Alibaba's platforms, accounted for more than 11 percent of China's total retail sales in the December quarter, according to the company's third-quarter results Thursday. That's a share of the national market comparable to all of Wal-Mart's sales plus all the transactions through Amazon.com put together, based on estimates from consultancy ChannelAdvisor:

Big Brother
Share of national retail sales at major stores and marketplaces
Source: Company reports; ChannelAdvisor; National Bureau of Statistics of China; U.S. Census Bureau; Bloomberg data
Note: Calendar quarters; Wal-Mart fiscal year ends Jan. 31 so has been back-dated.

It looks even bigger when you consider it in relation to the online subset of retail. About three-quarters of Chinese online spending takes place inside Alibaba's caves:

Busting at the Seams
Alibaba's marketplaces have been growing faster than China's retail sector as a whole
Source: National Bureau of Statistics of China, Company reports


What share of all that activity is Alibaba able to capture? An online marketplace that takes too much money from buyers and sellers risks driving them to competing exchanges that charge lower fees. China's JD.com, for instance, has a marketplace business that's growing much faster than its core direct-to-consumer division.

In its results yesterday, Alibaba pointed to a ``meaningfully higher" monetization rate, the share of gross merchandise volumes the company is able to capture for itself. Take a longer-term view, however, and the tax Alibaba is able to levy on customers looks remarkably consistent:

Clipping the Ticket
Alibaba charges a fairly consistent toll for online activity through its marketplaces
Source: Company reports
Note: Monetization rate is Alibaba's preferred measure

That suggests that any improvement in the company's profits must come from top-line growth. What are the prospects there?

Everything's Relative
China's annual pace of retail sales growth has been slowing for five years. It still looks rapid
Source: National Bureau of Statistics of China, U.S. Census Bureau
Note: Dotted lines indicate gaps in the data

Not as bad as you'd think. For all the angst about China's slowing economy, its retail sector is growing at about five times the pace of the U.S. and looks set to definitively overtake the dollar value of U.S. trade this year:

The Fast Lane
The value of China's retail sales is set to overtake the U.S.
Source: National Bureau of Statistics of China, U.S. Census Bureau
Note: Dotted lines indicate gaps in the data; Chinese figures have been converted to U.S. dollars

Online also continues to grow as a proportion of the overall market. China's online retail activity currently makes up the highest proportion of the total in any country globally, according to consultancy eMarketer, and will grow from 16 percent of all sales in 2015 to more than 33 percent in 2019:

Room to Grow?
Online sales as share of total retail sales, by major markets
Source: eMarketer

Even if you discount such a rosy level of forecast growth, Alibaba is no longer looking costly. Following the stock's slump so far this year, its forward price-earnings ratio is 25.8, only narrowly ahead of the 25.4 average for the 55 companies in the EQM Online Retail Index and well below Amazon's 64.8 multiple. While the company has gotten as big as it's likely to get in relation to its market, Alibaba can afford to lose ground to the competition and still outperform peers in slower-growing economies.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
David Fickling in Sydney at dfickling@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net