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Alibaba Eyes Its Next Big Opportunity: Rural China

Packages are piled up in a small shop's Cainiao servicePackages are piled up in a small shop's Cainiao service
Workers prepare goods for shipment at a warehouse run by Cainiao, Alibaba’s shipping network.Zhang Peng — LightRocket/Getty Images

Despite reports of slowing growth in the Chinese economy, e-commerce juggernaut Alibaba beat analyst expectations, reporting that December profits doubled and revenue increased by 30%.

One of the big takeaways from the company’s earnings was the continued mention of expanding reach into rural China as an untapped opportunity for Alibaba.

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The company explained Thursday that it has has set up operations, called Rural Taobao, in over 12,000 rural villages in China. This involved creating Taobao Rural Service Centers, where Alibaba provides internet connections along with purchasing and delivery services that provide goods to consumers in these areas, and allows them to sell their products to other parts of China. For example, Alibaba said that agricultural products from rural China are available to urban consumers as part of a Chinese New Year promotion on the e-commerce site. Alibaba anticipates setting up at least 100,000 of these centers in villages in the next three to five years, but didn’t breakout any revenue numbers from Rural Taobao.

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“Our strategy is to sell goods from urban areas to villages, as well as help farmers sell farmer products to people living in the cities,” said Alibaba CEO Daniel Zhang on a conference call on Thursday. “This we believe will have a huge potential in the future.”

Alibaba’s other big bet—selling goods from the U.S. and other Western countries to the growing Chinese middle class—appears to be paying off. Tmall Global, an online mall that only sells international goods, saw total sales colume increase 179% in the quarter. New brands who opened up stores on Tmall included Coca-Cola , Starbucks (SBUX), and Lululemon (LULU).

Shares of Alibaba were down over 1% to $68.47 per share in morning trading.