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Alibaba to Acquire Ele.me, Expand in Food Delivery Space

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Alibaba Group Holding Limited (BABA - Free Report) announced the acquisition of the remaining outstanding shares of a China-based food delivery start-up, Ele.me. Post the completion of the transaction, the start-up will be worth $9.5 billion. Post the acquisition, the online food delivery app will be able to leverage the retail infrastructure of Alibaba and will be part of its new retail strategy.

Ele.me — a website — provides customer-to-customer meal ordering services. It is also part of China’s latest online-to-offline (O2O) trend.

Per the terms of the deal, Wang Lei, vice president of Alibaba Group, will become chief executive officer of Ele.me and Zhang Xuhao, the current CEO and founder of the start-up will become the chairman of Ele.me and special advisor to Alibaba’s CEO on New Retail Strategy.

The latest deal is the final step of Alibaba toward the acquisition of Ele.me. Earlier, the company along with its affiliate, Ant Financial invested $1.25 billion in the start-up and held a 23% and a 43% of its shares alone and jointly, respectively.

The latest acquisition will help Alibaba expand product offerings. Moreover, its customer base will increase and market position is likely to strengthen. Thus, the company will be able generate higher revenues. Further, the deal will expand the company’s reach in the food delivery market.

Coming to the price performance, the shares of Alibaba have returned 69.8% over a year, outperforming the industry’s rally of 50.5%.

 



 

Expanding Business

Alibaba’s buyout of Ele.me is in line with its focus on expansion in the e-commerce industry. Moreover, the latest deal brings in Baidu Waimai, a food delivery app acquired by Ele.me, to the company’s platform.

In fourth-quarter 2017, the Chinese online food delivery market reached $10.7 billion, reflecting 81.8% year-over-year growth, which was led by combined market share of Ele.me and Baidu Waimai (represented 49.8% of the total market).

Additionally, Alibaba stated that Ele.me might be integrated with Koubei, the company’s app that lets consumers order food, book hotels and buy movie tickets. This integration will enhance the delivery and payment services of the company, which will attract more customers.

In third-quarter fiscal 2018, the company generated $11.3 billion from e-commerce business, which was up 57% on a year-over-year basis. This was mainly contributed by strengthening retail business, driven majorly by New Retail Strategy.


Improving Competitiveness

With the latest investment in O2O space, the company has improved its competitiveness against the Chinese search giant, Baidu (BIDU - Free Report) , which is continuously investing in this particular space.

Further, with the intensifying competition between Alibaba and Tencent (TCEHY - Free Report) in various sectors, the former has strengthened its competitive position in the food delivery market which has investments in Meituan, one of the top food delivery platforms of China.

Buyouts Shaping Growth Story

Acquisitions have helped the company in shaping its growth trajectory and diversifying business.

Alibaba’s acquisitions of Weibo, Youku Tudou and UC Web have helped the company to diversify  business in order to reap benefits from various segments of internet.

Acquisition of Ele.me is a major push toward online food delivery market in China.

 

 

Zacks Rank & Stock to Consider

Currently, Alibaba carries a Zacks Rank #3 (Hold).

Investors interested in the same space can consider Stamps.com which sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Stamps.com is currently pegged at 15%.

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