Alibaba tries its luck on the metaverse

Alibaba launched its first mall on the metaverse in late May, just in time before China’s 618 shopping festival, which officially started last Tuesday and ends June 18. The 618 represents June 18, the birthday of JD.com, one of Alibaba’s biggest competitors.

By Esty Dwek, CIO

Obviously, all the Chinese e-commerce giants are participating in the event; many promotions, ‘red packets’ and various commercial advantages are distributed to encourage Chinese consumers to consume.

In addition, this year, the 618 comes at a key time for Chinese tech giants, when rumors suggest that government repression is finally ending, and Chinese authorities will throw their weight behind Chinese growth battered by a very strict Covid policy.

One therefore wonders if the launch of a mall on the metaverse could be the point of reflection towards a better future for Alibaba.

Alibaba recorded the slowest growth in its history

Alibaba recorded its slowest growth in the first quarter of this year due to the Covid disruption. Yet, what the company offers remains favorable to pandemic conditions. It should be remembered that the months of pandemic restrictions in the United States have inflated the turnover of American technology stocks, while their Chinese counterparts have suffered from a strong government repression during the same period.

As a result, Alibaba posted the slowest revenue growth in its history last quarter. Even the latest quarantine measures in Shanghai did not prevent Alibaba from suffering from a drop in online shopping for its two main Chinese platforms during the quarter ended March 31. Weaker economic growth, a disrupted supply chain and logistics weighed on the company’s business.

The company’s total revenue increased 9% in the last quarter compared to a year ago.

Investors are therefore hoping the 618’s results beat analysts’ expectations to signal an improving trend and provide a boost to Alibaba’s stock price, which has been trying to break its negative trend for the past few weeks.

Nothing better than a virtual mall when you’re locked in!

Many countries dropped strict pandemic rules in 2022, but China has doubled down on its zero Covid policy since the start of the year.

Even though recent lockdown measures are being eased, the risk of further lockdowns in China remains real and is putting unavoidable pressure on many retail businesses. In this sense, Web3 is becoming an increasingly promising alternative in China, where companies could booster their sales, meet the demand of their consumers, build and maintain a relatively close relationship with their customers even if the physical stores remain closed or threatened with closure.

As a result, Alibaba’s Taobao does not hesitate to make its name known in the metaverse. From its VR Shopping Buy+ program to the virtual avatars of TaoBao Life, this fully immersive metaverse mall is an interesting Web3 development for the Chinese consumer.

2022.06.15.Taobao

We all have a specific idea of ​​what a mall would look like on the Metaverse. It’s a giant virtual space, where shoppers will be able to guide their avatars through 3D stores and engage in several interactive activities using their smartphones.

We may be only half satisfied with the idea, but the latest restrictive measures in Beijing and Shanghai will inevitably lead to growing interest in an activity that the Chinese consumer could do from their sofa: shopping online, in 3D .

Thus, the announcement of Alibaba’s new virtual mall takes the concept of Web3 to the next level in China, and appears to be a chance for Alibaba to offset its declining sales and boost its growth.

And while Alibaba’s western competitors offer external devices and VR headsets to deliver the metaverse experience to their customers, Alibaba’s virtual mall does not require any external device.

Is it time to buy Alibaba?

Alibaba has lost nearly two-thirds of its valuation since its high in late 2020. Government repression was the main reason for Alibaba’s downfall. While U.S. tech stocks hit all-time highs on the back of the surge in online activity due to pandemic measures, Chinese tech stocks took a hit mainly due to government pressure on their highly profitable businesses.

2022.06.15.Alibaba graph

Today, the pressure seems to be easing, yet the government threat is omnipresent. Among them, changes to security regulations and the government’s drive to migrate data to government-backed entities are among the top threats to Alibaba’s most profitable advertising and cloud computing business.

Moreover, Chinese authorities last week denied rumors that ANT Group’s long-awaited IPO would be revived, warning that Alibaba’s fight against the government is not yet won.

Nonetheless, a growing number of investors are now looking for attractive buying opportunities in Chinese tech stocks.

While the contested management of the Covid pandemic remains a major risk for Chinese growth, and for macro-sensitive sectors such as retail, the end of government repression measures, increased economic and fiscal aid from Chinese authorities and the relentless improvement on the Chinese tech front may finally bring the most innovation-hungry investors back to Chinese equities. If so, Alibaba will definitely be headlining to enjoy a long-awaited return of funds.

NB: These are not investment recommendations.

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