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Alibaba Roundup: Expansion, Blockchain, Cloud, Retail, Deals

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The trade war is officially on with new Trump tariffs on $34 billion worth of Chinese imports going into effect last week. China has retaliated in a like manner, imposing tariffs on $34 billion worth of American goods. Both are at 25%. That’s a lot of extra cost that consumers will have to bear.

The only thing worse is if everything threatened is actually charged, because of the implications for trade that are honestly hard to guess at right now.

Sino-U.S. relations remain as sour as ever in the meantime, as struggling Chinese telecom ZTE continues to be denied U.S. parts because it dared to engage in trade with North Korea and Iran, the two countries the U.S. wishes to pressure. This despite the fact that it recently changed its leadership to comply with U.S. conditions to lift the ban. ZTE is also required to pay a $1 billion fine, place $400 million in escrow and allow outside monitoring if it wants the Commerce Department to allow some companies to do business with it.

Of course, China’s MOFCOM hasn’t approved Qualcomm’s (QCOM - Free Report) NXP purchase, but this may not be an existential crisis for Qualcomm.

The U.S. is also opposing Chinese attempts to invest in U.S. companies or in startups engaged in developing “key” technologies. The government is looking to further empower the Committee on Foreign Investment in the United States (CFIUS) to block this kind of deal. So Chinese firms are looking elsewhere.

Alibaba (BABA - Free Report) , one of the leading deal makers of China has been busy. Read on to know more:

Focus on Non-U.S. Markets

With the Trump administration going anti-China, Alibaba was involved in just one major U.S. investment this year: leading a $26.4 million funding round in a data-analysis startup called SQream Technologies. This is a far cry from the significant investments in social media company Snap, ride-sharing company Lyft, VR startup Magic Leap and online sports merchandise retailer Fanatics in the recent past.

Alibaba is instead continuing investments in other emerging areas, notably Asia and the Middle east-North Africa (MENA) region.

This month, the company announced the EMEA Ecosystem Partner Program to strengthen collaboration between its cloud customers and partners in the region. Its bigger partners include Intel (INTC - Free Report) , Accenture (ACN - Free Report) , Hashicorp, Ecritel, Altran and Micropole. The program is also available to startups via Station F, one of the largest startup campuses that has incorporated the program into its exclusive perks for startups.

The focus on international markets also got it interested in popular Turkish online fashion retailer Trendyol. The two companies will work together to help Trendyol expand in Turkey and its neighboring countries. The timing and amount of investment is unknown. This follows a $600 million plan to set up a smart city concept near Dubai’s free port Jebel Ali to house 3,000 firms developing robotics, artificial intelligence and new mobile apps.

Adopts Blockchain Technology

Alibaba founder and CEO Jack Ma has talked down bitcoin technology while embracing the blockchain authentication system that backs it. The company has a big remittance business through its Ant Financial affiliate and has expressed its intention to use some of the $14 billion raised in its IPO to build the technology and solutions based on it.

Blockchain is expected to bring down the cost of transferring money while speeding up transactions and making them more secure, which is probably why Ant Financial is already deploying it in a solution targeting Hong Kong’s large Pilipino working population that regularly sends money back home (that remittance was $33 billion in 2017 and 10.2% of the Philipplines’ GDP in 2016, according to the World Bank).

Hong Kong is a great place to start with a number of companies already adopting the technology successfully. Singapore-based startup Toast for example, says it can transfer money in about 2 minutes. Another startup called EMO says it can transfer money in about 10. China’s Tencent has also introduced a service targeting the same remittances market through its Wechat platform.  

Alibaba recently strengthened its position in Ant by acquiring a 33% stake in exchange of the then existing profit sharing arrangement (the company made a loss in the last reported period).

Alicloud Surpasses IBM

According to Synergy Research Group, Alibaba’s Aliyun moved ahead of IBM in the first quarter of 2018 to become the fourth largest provider of cloud services in the world. The company’s growth was initially driven by its strong position in the domestic market, but it has built on this position to become the second largest provider in the Asia Pacific region.

Today, it is expanding the world over with some of its more illustrious customers being InterContinental Hotels Group, KPMG, Nestle, Philips, SAP, Schneider Electric and Conversant. The company generated revenue of over $2 billion in its last fiscal year. It trails Amazon (AMZN - Free Report) , Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) , all of which are growing just about as fast.

AI-Powered Fashion Retail

With its artificial intelligence-powered fashion retail solution, Alibaba has attempted to do the seemingly impossible: match the fashion trends to your own preferences to suggest trendy items that may satisfy you.

The system’s personalized recommendations come from its ability to read and analyze data generated by Alibaba's ecosystem, images of more than 500,000 outfits from Taobao stylists and fashion expertise from Tmall partner brands. For the more fashion-conscious, it also offers cross-brand recommendations.  

A concept store embodying the technology will open on the Hong Kong Polytechnic University campus from July 4-7.

Investment in China Media Group

As the government gradually loosens its grip over firms by adopting a mixed-ownership policy change, Chinese technology giants Alibaba and Tencent are making the most of the situation. So after snapping up stakes in leading Chinese telecom company China Unicom, the two have now turned attention to media company CMC.  

With a stake in the owner of English Premier League team Manchester City and a joint venture with Hollywood studio Warner Brothers Entertainment, China’s CMC is a media company with a media giant in its own right.

The A-round fundraising brought in 10 billion yuan ($1.49 billion) for the company.

Cozying Up with French Conglomerate

The French conglomerate Bollore Group has signed a global partnership agreement with Alibaba covering cloud computing services, clean energy, logistics and other areas including new digital technologies and innovation. Bollore controls a large logistics operation in French colonies in Africa, which could be one of the reasons it is interested in a relationship. Besides, it also controls a 20% stake in French media giant Vivendi.

 

Recommendations

Alibaba shares carry a Zacks Rank #3 (Hold). For better investment options, see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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