Personal Finance

How Alibaba Makes Its Money

Alibaba CEO Daniel Zhang stands on stage during an Alibaba event.

Alibaba 's (NYSE: BABA) 10-quarter streak of above 50% revenue growth finally came to an end this past quarter. However, the Chinese e-commerce giant still managed to report 41% year-over-year revenue growth for the period -- an impressive feat.

The company's top line benefits from a number of growing businesses, including e-commerce platforms, physical stores, and even a movie ticketing platform. But just three of Alibaba's business segments are responsible for 99% of the $17 billion in revenue i t report ed for the past quarter. Let's take a quick look at them.

Alibaba CEO Daniel Zhang stands on stage during an Alibaba event.

Alibaba's new CEO, Daniel Zhang, is under pressure to keep up the company's revenue growth. Image source: Alibaba.

1. Alibaba's core commerce business

It will come as no surprise that the majority of Alibaba's money comes from its core commerce segment. In fact, its cluster of commerce businesses made up 88% of its revenue for the most recent period. For the three months ended in December, revenue from core commerce increased by 40% year over year to nearly $15 billion.

However, you might not know about the most successful e-commerce businesses under Alibaba's core commerce division. First, there's its consumer-to-consumer marketplace, Taobao, that lets small businesses and individuals sell items and has become the largest online shopping platform in China. Second, Alibaba owns business-to-consumer site, which outpaced the industry this past quarter by reporting a 29% increase in its physical-goods gross merchandise value.

Alibaba's China retail marketplaces hit a record 699 million mobile monthly active users, an increase of 33 million from the last quarter. On the company's latest earnings call , Alibaba's new CEO, Daniel Zhang, said he believes this group of active customers is the company's most important asset. He hopes Alibaba can create more ways to make money from them in the future.

2. Alibaba's cloud business

Alibaba's cloud computing business, launched nine years ago, reported revenue of $962 million for the past quarter. That might seem negligible next to the core commerce segment's $17 billion contribution. However, the cloud business is growing fast, with revenue growing by a stunning 84% over the past year. In addition, Alibaba Cloud's revenue made up 6% of the company's total revenue pie for the past quarter, up from 4% in the year-ago period.

Alibaba's cloud platform now has over 50% of the market share in China. However, it claims less than 5% of the global cloud market, which Microsoft and dominate. To help the business grow, Alibaba said it wants to start offering cloud customers more access to the data and technology it uses to grow its own businesses.

3. Alibaba's media and entertainment business

Alibaba's media and entertainment business is slowly but surely growing. For the past quarter, its revenue grew by 20% year over year to $944 million. However, the segment made up just 5% of Alibaba's total revenue, down from 7% in the same period last year.

The revenue increase for media and entertainment was mainly thanks to mobile search and game publishing, as well as an increase in subscribers to Youku, or its own version of Netflix . In the past year, Youku saw a 64% increase in average daily subscribers. However, it still lags behind top competitors Tencent Video and iQiyi from Baidu .

This segment has become a big expense for Alibaba because it's been spending billions on licensing content, as well as producing its own original shows, just like Netflix. For the past quarter, the segment lost $878 million, compared with a $340 million loss for the same period last year.

The most recent quarter was notable for this segment because Alibaba increased its stake in Alibaba Pictures from 49% to 51%, giving it control over the TV and movie production company. Last year, Alibaba Pictures co-produced and financed Dying to Survive , which ended up becoming the third highest-grossing film in Chinese cinema history. Alibaba hopes the studio can help it produce more content for Youku so it can overtake Tencent Video and iQiyi.

While it's nice to see Alibaba investing in other businesses outside commerce, it doesn't have much to worry about. China's 1.4 billion population is still adapting to online shopping, plus the country's middle class is expected to grow to 850 million people by 2030, up from today's 300 million. In other words, its core commerce businesses should be more than enough to keep it going for the foreseeable future.

10 stocks we like better than Alibaba

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Alibaba wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of January 31, 2019

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Natalie Walters has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Baidu, Netflix, and Tencent Holdings. The Motley Fool owns shares of Microsoft. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story


Other Topics


Latest Personal Finance Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More