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Alibaba Roundup: Deals Galore for China's Leading Online Retailer

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Trade tensions between the U.S. and China remain even as technology companies continue to deepen their ties. As the government appeared to come to an understanding with Beijing, markets heaved a sigh of relief. But peace was short-lived as the U.S. sent another threat to impose sanctions with China responding that it was capable of protecting its interests.  

Alibaba (BABA - Free Report) co-founder and EVP Joe Tsai referred to this sparring at a conference in California, particularly a comment by Senator Mark Warner that Chinese tech firms were deeply penetrated by the Chinese Communist Party.

He said that the form of government in China wasn’t a dirty word, that there was nothing wrong with a country wanting to “upgrade its own manufacturing sector, go higher tech, be more innovative” and that some people in America simply wanted to stop China from doing that. Tsai for his part was welcoming American farmers and small businessmen to tap the opportunity in China and was in the country to help them do just that.

Here are the other stories from last week-

Investing in Israel

Chinese companies are going all out to invest in tech hubs the world over as the country marches toward its technology leadership role.

This agreement to invest $26.4 billion in Israeli database analytics developer SQream will bring the company’s technology to Alibaba’s cloud customers in China.

The company already has an R&D center in the country (one of seven it intends to build in tech hubs across the world) and founder CEO Jack Ma met a group of 35 senior executives recently to cement ties.

SQream CEO and co-founder Ami Gal, who toured Beijing, Shanghai and Shenzhen last year said, "The whole idea was that we were looking for a strong, local partner to distribute our database in China."

SQream has earlier raised $7.4 million from Blumberg Capital in 2015 for its SQL analytical database.

Consolidating Chinese Delivery Network

Alibaba, its logistics partner Cainiao (in which it has a controlling stake) and other investors are putting $1.38 billion into Chinese logistics company ZTO Express. In exchange, the group will get a 10% stake in ZTO and Alibaba will get a seat on its board.

ZTO, which has for long been an Alibaba distribution partner, has been seeing growing competition. After a bitter price war with peers, the firm (along with several others) was recently forced to raise prices. So the cash infusion should help the company shore up its capabilities to serve its customers better and perhaps justify the price it charges.

As far as Alibaba is concerned, ZTO's first and last-mile pickup and delivery capabilities, warehouse management, cross-border logistics and technology-driven smart solutions, will help it deliver what it calls “new retail.” This is basically its omnichannel effort and includes quick delivery times, grocery delivery, car vending machines, in-store shopping apps and so on.

According to Lin Wan, President, Cainiao Network, “The logistics industry in China is highly competitive with its own unique features and presents plenty of new opportunities ahead. This investment will enable Cainiao and ZTO to supercharge joint innovation and development to accelerate digitalization of the industry.”

Alibaba also recently bought minority stakes in YTO Express and Best Inc. with a similar goal in mind.

Healthcare Assets Transferred to Alibaba Health

Alibaba Health Information Technology Ltd has agreed to buy Alibaba-owned Ali JK Nutritional Products Holding Limited to expand its product categories and thereby deal with growing competition from companies like Tencent Holdings-backed WeDoctor and recently-listed Ping An Healthcare.

Ali JK, which generated a gross merchandise volume (GMV) of around 20.56 billion yuan ($3.21 billion) in the financial year ended March 31, controls sales of medical devices, healthcare products, adult products and healthcare services on Alibaba's Tmall platform.

The deal, which is subject to approval of Alibaba Health shareholders and the Hong Kong stock exchange, will see Alibaba acquire newly-issued shares in Alibaba Health that will take its economic interest in the company from the current 48.1% to 56.2%, also resulting in a 67.5% voting interest.

McKinsey & Co estimates that Chinese healthcare spending will reach $1 trillion by 2020 from $357 billion in 2011, with some disruption from technology firms. So it’s an important market to conquer. Getting its healthcare assets and brands organized seems like a necessary step in that direction. No wonder then that Alibaba CEO Daniel Zhang said in a statement that the deal would help turn Ali Health into the country's "best healthcare ecosystem."

Investing in Social Ecommerce the Chinese Way

Alibaba, along with GSR Ventures, Tencent Investment, GGV Capital, Genesis Capital, Tiantu Capital, Zhen Fund, and K11 Adrian Cheng, is investing $300 million into social and ecommerce site Xiaohongshu. Founded by Charlwin Mao and Miranda Qu in 2013, the site has around 100 million users and is particularly popular with generation Z.

Ant Financial Raises $10 Billion

Alibaba’s payments arm and operator of China’s most popular payments platform Alipay has raised $10 billion at a valuation of $150 billion. Investors included Singapore's sovereign fund GIC Pte Ltd, its state investor Temasek Holdings (Private) Ltd, Malaysian sovereign fund Khazanah Nasional Bhd, U.S. private equity firms Warburg Pincus LLC and Carlyle Group LP as well as venture capital firm Sequoia Capital. Its valuation at the previous funding round back in April 2016 was $60 billion.

 

Recommendations

Alibaba shares have a Zacks Rank #3 (Hold). Safer bets at the moment are Groupon (GRPN - Free Report) , IAC Interactive , Amazon (AMZN - Free Report) , Expedia (EXPE - Free Report) or PetMed Express (PETS - Free Report) . Or you can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

 

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