Alibaba’s (BABA - Free Report) AliExpress has entered into a strategic partnership with Mail.Ru Group, a Russia-based internet company, to form a social commerce joint venture. This is in sync with the company’s efforts to bolster presence in the Russian e-commerce space.
With this, the Chinese e-commerce giant strives to offer enhanced services to the Russian customers by allowing them to socialize, shop, play games and communicate on one-stop platform.
Per the terms of the deal, the new venture will be backed by Russian Direct Investment Fund (“RDIF”) and MegaFon, a Russian telecommunications company, both of which will acquire stake in Alibaba’s AliExpress Russia.
MegaFon will forego 10% stake in Mail.Ru to acquire 24% stake in AliExpress Russia. Further, Mail.Ru will acquire 15% stake in AliExpress Russia in exchange of its e-commerce unit, Pandao. Notably, Mail.Ru will contribute Pandao to the joint venture. Moreover, RDIF will take more than 13% stake in the venture.
The latest move of Alibaba will also benefit the small and large local merchants of Russia to come online and serve both domestic and international markets by leveraging its wide customer base.
Furthermore, consumers will have access to a wide variety of quality product on the company’s platform. Moreover, this is in sync with Alibaba’s strong efforts to deliver enhanced consumer experience.
Consequently, the company will also benefit the society with all these endeavors.
Additionally, the strong initiatives of the company are likely to strengthen its competitive position against Yandex (YNDX - Free Report) and MercadoLiblre (MELI - Free Report) . Moreover, their market position might get impacted with the aggressive strategies of Alibaba.
Russia Holds Promise
Alibaba’s strengthening footprint in Russia will continue to aid its e-commerce market position in the country.
According to a latest report from Statista, revenues in the Russian e-commerce market are expected to reach $23.6 billion by 2022 at a CAGR of 8.2% between 2018 and 2022. Additionally, the number of e-commerce users is projected at 61.5 million for 2022.
We believe the company is well poised to cater to this rapidly growing market, thanks to the increasing penetration of internet and smartphone users in the country.
Moreover, the vast user base of Mail.Ru which currently stands at 100 million will bolster the customer base of Alibaba in the country. This in turn will drive its top-line growth.
The immense growth opportunities in the Russian e-commerce market are alluring, which is likely to lead to intensifying competition.
However, the abovementioned endeavors are likely to help Alibaba in gaining momentum in the market.
Nevertheless, strong presence of Yandex and Mercadolibre in Russia does not bode well for Alibaba’s growing investment in the country. Further, the leading position of Yandex in the country’s e-commerce as well as search market remains a concern.
Additionally, Amazon (AMZN - Free Report) , which dominates the global e-commerce space, also operates in the Russian market. This has further intensified the battle in the country.
Consequently, Alibaba might face severe competitive pressure from these big e-commerce players in the near term.
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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