Alibaba (BABA - Free Report) has dominated headlines this week. On Monday, founder and executive chairman Jack Ma announced that he would step down in 2019 to “focus on philanthropy and education.” Then on Tuesday, the company announced that it is forming a joint venture with Russia’s sovereign wealth fund (RDIF), telecom firm MegaFon, and internet company Mail.Ru.
These two bombshells are the latest in a string of news that reflect changes within the storied Chinese e-commerce giant. But what does this all mean for Alibaba’s future? Let’s take a closer look.
Global Expansion is Very Much a Priority
Alibaba already serves about 80% of the Chinese e-commerce market, and has taken numerous steps to expand its foothold overseas. The company has charged into Southeast Asia, investing $1 billion for a 51% stake in Lazada in 2016. Alibaba then doubled down on the investment the following year, which brought its stake to 83%, and installed its own CEO, BABA co-founder Lucy Peng.
Alibaba has also either acquired or made a stake in Singapore-based Redmart, Singapore Post, and Indonesia-based Tokopedia, all of which are online marketplaces. Moreover, BABA and its subsidiary Ant Financial have been very busy in the online payment sector, building stakes in Singapore’s M-Daq, Thai firms TrueMoney and Ascend Nano, Philippines-based Mynt, and Malaysia’s Touch n’ Go.
The new focus on Southeast Asia makes sense for Alibaba. The 10 nations that make up the Association of Southeast Asian Nations boast a population of 640 million people. With millions of new users coming online every month, the region represents a massive business opportunity.
Tuesday’s news highlights a new piece of the global expansion puzzle for Alibaba. AliExpress, which is the firm’s global marketplace, opened service in Russia a few years ago. But Tuesday’s deal will give it exposure to Mail.Ru’s 100 million registered users, to which it provides social media, email, and food delivery services. MegaFon and RDIF will also play a key role in maximizing BABA’s exposure in Russia.
The joint venture is valued at a cool $2 billion, according to TechCrunch. And this figure does not even include other investments into the venture, meaning that it could be even more lucrative. Alibaba has also made moves in India and Europe, where it is expanding its cloud-based services and building brand recognition. Plus, Alipay is slowly gaining presence in the UK, Greece, and other nations in the region, although that process will still take time.
What Does This All Mean?
By now, investors have realized that Alibaba has quite a few pieces in play. But with Ma stepping down and growing domestic and international competition, there are still notable concerns for the tech conglomerate. A majority of the firm’s exposure is in China, which is in the midst of an economic slowdown and a trade war with the US.
Fellow giant Tencent (TCEHY - Free Report) is in the midst of an ongoing battle both in China and Southeast Asia. Moreover, Alibaba’s expansion to the West has also put it in the crosshairs of Amazon (AMZN - Free Report) , eBay (EBAY - Free Report) , and Paypal (PYPL - Free Report) , to name a few.
But these risks are inevitable for any growing business. Alibaba’s continued streak of solid earnings beats, coupled with strong strategic acquisitions and investments, leaves the firm well-positioned for long-term growth.
Still, analysts have concerns in the short-term, as reflected by nearly universal negative earnings estimate revisions for the current quarter, next quarter, current fiscal year, and next fiscal year. Alibaba’s performance, while strong, has underperformed its industry in the last year (-9.8% vs. 35.4% in the E-Commerce Market).
Regardless, Alibaba’s latest move into Russia is a maneuver that US firms cannot even consider due to various tensions. This strategic advantage is one that Alibaba could continue to build on, giving it a competitive moat against industry peers. While the firm may still have turbulence ahead, it is very much worth keeping on the radar for years to come.
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