Tuesday, 30 July 2024
by BD Banks
Shares of Alibaba (NYSE: BABA) were moving higher on reports that it’s planning to increase a service fee for merchants. The news was enough to lift shares of the struggling Chinese e-commerce stock by 3.2% as of 10:45 a.m. ET.
According to media reports, Alibaba will begin charging a basic software service fee of 0.6% on transactions for vendors on both its Tmall and Taobao marketplaces. The move leverages the company’s leading e-commerce platforms and follows a similar tactic that Amazon has used, tacking increased fees on merchants who have little choice but to pay them.
Image source: Alibaba.
Most of that new income should flow to the bottom line as it doesn’t require any significant changes to Alibaba’s platform. The company’s move also follows a similar shift to a percentage-based fee structure that e-commerce peers like PDD Holdings, JD.com, and ByteDance have taken.
Alibaba stock has been struggling for years as a combination of a sluggish Chinese economy, a crackdown from Beijing on tech stocks, and competition from Pinduoduo and others has sapped the company’s growth. It was also forced to abandon plans to spin off its cloud computing unit, due to new chip export restrictions from the U.S.
The new merchant fee could foreshadow more changes to come and reflects a strategy that signals the company is focusing more on profit than growth.
Alibaba still has a lot of market power and could likely do more to monetize its platform, including increasing advertising, much like Amazon has done. Investors seem prepared to reward the stock if it does so. We’ll learn more when Alibaba reports earnings in mid-August.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jeremy Bowman has positions in Amazon and JD.com. The Motley Fool has positions in and recommends Amazon and JD.com. The Motley Fool recommends Alibaba Group. The Motley Fool has a disclosure policy.