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Alibaba (BABA) Increases Stake to 51% in Alibaba Pictures

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Alibaba Group Holding Limited (BABA - Free Report) is looking to expand its foothold in the digital media and entertainment industry.

Alibaba recently announced that it will increase its stake in Hong Kong and Singapore listed Alibaba Pictures to 51% from 49%, giving the company the control of the film unit's board.

Per the deal, Alibaba Pictures will issue one billion new shares to Alibaba at HK$1.25, valuing the deal at roughly $159.9 million (HK$1.25 billion). This will increase its stake to 51% from 49% in Alibaba Pictures, making the latter a full subsidiary of Alibaba.

The company’s investment in Alibaba Pictures is in line with its strategic focus on digital entertainment. The company expects the latest move to expand its user base and fend off competition.

Coming to share price performance, the company's shares have lost 12.1% on a year-to-date basis against the industry’s growth of 1.6%.



Increasing Focus on Media

Alibaba’s innovative initiatives will continue to uphold its position in the world of media and entertainment, particularly in China. This growing unit includes its video-streaming platform Youku as well as music-streaming service Xiami.

This February, Alibaba signed a multi-year content licensing agreement with Disney subsidiary Buena Vista International, which gave it the rights to stream Disney content. The company has jumped into sports streaming as well. It streamed the entire 2018 FIFA World Cup through a partnership with China Central Television. The World Cup, along with its continued original content investment, led to daily average subscriber growth of 200% for Youku.

Per the latest data from Statista, video-on-demand revenues in China are expected to grow from $1.36 billion in 2016 to $3.13 billion in 2022.

We believe that Alibaba is well poised to reap benefits from this rapidly growing market on the back of its new strategies that include partnerships and acquisitions, among others.

Looking Ahead

The Chinese e-commerce giant intends to expand its presence beyond e-commerce and cloud computing to media.

Alibaba Pictures, listed in 2016, operates under Alibaba's Digital Media and Entertainment business. The segment operates businesses through media properties that include UCWeb, YoukuTudou, OTT TV service, Alibaba Music and Alibaba Sports.

In the last reported quarter, revenues in the Digital Media and Entertainment were RMB5.9 billion (US$865 million), reflecting an increase of 24% on a year-over-year basis. The segment’s top-line growth was driven by an increase in revenues from mobile value-added services provided by UCWeb, such as news feeds and mobile search, along with subscription and advertising revenues from YoukuTudou.

The latest deal indicates the Chinese Internet giant’s continued efforts to make a mark in online entertainment as they seek to attract more users to its platforms, thus driving top-line growth.

However, other tech companies, namely Netflix and Amazon, among others, are also making all efforts to expand in this space. Therefore, the fight for a share in the streaming online market should be quite an interesting one.

Zacks Rank & Stocks to Consider

Currently, Alibaba has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include AMETEK, Inc. (AME - Free Report) , QuinStreet, Inc. (QNST - Free Report) and Inc. (STMP - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for AMETEK, QuinStreet and is currently pegged at 11.18%, 25% and 15%, respectively.

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