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Alibaba Boosts Food Delivery Presence With Ele.me Investment

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Alibaba (BABA - Free Report) is leaving no stone unturned to strengthen its presence in the e-commerce space with the aid of its aggressive policies and strong investment strategies.

Recently, the company along with SoftBank has invested $3 billion in startup, Ele.me, which it acquired this April. Moreover, Ele.me that operates an online food delivery platform will be merged with Alibaba’s Koubei. Notably, Koubei helps the local businesses to come online by providing payment and other technology services.

Notably, both the affiliates will come under a new holding company which is likely to add more efficiency to Alibaba’s food delivery business on the back of robust capabilities of Koubei in driving traffic to restaurants.

Online Food Delivery Space Holds Promise

Per the latest report from Statista, revenues in the China’s online food delivery market are projected at $41.7 billion in 2018. Further, these revenues are expected to reach $61.5 billion by 2022 at a CAGR of 10.2% between 2018 and 2022.

The emerging concept of restaurant-to-consumer delivery is the primary reason behind this immense growth. Moreover, the user base in this segment is anticipated to hit 469.1 million in 2022.

We believe the latest move of the company will bolster its footprint in this rapidly growing market and help it in reaping benefits from this space.

Moreover, Alibaba will be able to expand its presence in more cities of China by merging Ele.me and Koubei. Notably, this will dive growth as the merger will provide a closed loop experience of payments to the consumers.

Consequently, all these endeavors will aid the top-line growth of the company.

Strengthening Competitive Position

Alibaba’s aggressive stance in the food delivery market is evident from its strong efforts to improve the market share of Ele.me. Moreover, the startup owns the food delivery service business of Baidu (BIDU - Free Report) which is in sync with Alibaba’s strategy of strengthening market position.

Further, the company’s recent deal with Starbucks (SBUX - Free Report) per which the latter will be leveraging delivery services of Ele.me, remains a major positive for Alibaba. The popularity of the Starbucks brand will aid further expansion.

We believe all these coupled with the latest move of Alibaba will help it in gaining a competitive edge against Tencent (TCEHY - Free Report) which has backed Meituan Dianping, the biggest competitor of Ele.me.

Moreover, with Ele.me, Alibaba is well poised to gain momentum in the retail space as it will strengthen its online-to-offline retail initiatives.

However, rising competition in the online retail space and strong retail push from Tencent poses a major threat to the market position of Alibaba.

Currently, Alibaba carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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