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What Alibaba’s Dreams Are Made Of


How far can the euphoria over Alibaba Group Holding Ltd. go?

Even by the standards of online retail, its rise has been extraordinary. Revenue has grown by an average 52 percent annually over the past five years. Its 158 billion yuan ($23 billion) of sales in the 12 months through March was more than 10 times the 2011 figure.

Far from slowing down as it grows, Alibaba appears to be keeping up the pace: Revenue will increase 45 percent to 49 percent in its 2018 fiscal year, the company said at its investor day Thursday.

That’s most impressive when you consider how dominant Alibaba already is. It’s easiest to increase revenue from a low market-share base, but the Chinese e-commerce company is already little short of a monopoly.

If you think Amazon.com Inc.’s 43 percent share of U.S. online sales is extraordinary, consider this: Sales through Alibaba’s online marketplaces have been hovering around 70 percent of the national total for several years now, and rose to 80 percent in its most recent fiscal year, according to Gadfly’s calculations.

That scale of dominance still suggests the kernel of a problem, though. Any seller of consumer goods must eventually contend with the law of big numbers: The larger you get, the harder it is to keep growing.

Luckily Alibaba recognizes this, and is putting its considerable cash flows to work in finding the next leg of growth. While its core e-commerce business makes up more than 82 percent of sales, Alibaba is following the Amazon playbook by…