Alibaba Buys US App, Baidu Shops In Brazil
New overseas investments by 2 of China’s top 3 Internet firms hint at where future priorities will lie for e-commerce leader Alibaba (NYSE: BABA) and Internet search giant Baidu (Nasdaq: BIDU), which have made new purchases in the US and Brazil, respectively. More broadly speaking, the relatively modest size of these latest investments reflects the very real fact that major M&A targets have mostly disappeared by now, putting pressure on the cash-rich trio of Baidu, Alibaba and Tencent (HKEx: 700) to look overseas for places to invest. Based on the nature of these new investments and other similar recent ones, it’s becoming clear that overseas companies are most interested in the Chinese companies’ cash and would probably prefer to avoid being seen as a “made in China” company.
Let’s jump right into the latest headlines that have seen Alibaba purchase a stake in a US company whose app can transform smartphones into remote controls that can operate anything from TVs to air conditioners. (English article; Chinese article) In a separate but similar-sized deal, Baidu has purchased a controlling stake in a Brazilian online discount e-commerce firm. (English article)
Of the 2 deals, Baidu’s looks the most interesting since at least it’s related to the company’s recent launch of a Brazilian search engine. Alibaba’s move doesn’t look related to much of anything the company has been doing lately, and probably reflects the pressure it’s feeling to quickly start spending its huge cash pile on strategic acquisitions to justify the sky-high valuation it received after its wildly successful IPO last month.
All that said, let’s zoom in first on the Baidu deal reports, which don’t contain much detail beyond the fact that China’s search leader will buy a controlling stake in Brazil’s Peixe Urbano. No financial details were given, though Baidu previously pledged to invest about $50 million in Brazil over the next 3 years.
Baidu announced plans to enter Brazil’s search market 2 years ago, though it just formally launched its site there this summer. (previous post) I’m honestly not sure how a discount retailer would fit into that broader Brazil strategy. Still, at least this particular move shows that Baidu is picking international markets based on its development priorities, and I expect we could see more strategic purchases like this in places like Brazil, Thailand and other developing markets over the next 2 years.
Next there’s Alibaba, which has invested $50 million in US-based Peel, maker of the Peel Smart Remote app. This latest investment follows an earlier $5 million investment by Alibaba in Peel last year. There’s no more detail about the deal, though Peel’s chief executive said that he wasn’t facing any pressure from Alibaba to integrate e-commerce elements into his company’s app.
This particular investment is just the latest in a steady string of similar sized deals for Alibaba in the US, including its $75 million purchase last year of a minority stake in ShopRunner, which operates an online shopping mall similar to Alibaba’s Tmall. (previous post) That deal looked a bit more logical as it was related to Alibaba’s core e-commerce business. But either way, this latest deal does appear to show that Alibaba is putting a focus on the US for global expansion following its blockbuster IPO last month.
At the end of the day, neither of these 2 latest deals by China’s “big 3” Internet firms will probably have any real impact on either Alibaba’s or Baidu’s top or bottom lines, at least not for many years. In all likelihood, both purchases will end up as more financial investments, which will see Alibaba and Baidu either reap some nice but relatively small profits if the companies succeed, or some small write-offs if they fail.
Bottom line: New investments by Alibaba in the US and Baidu in Brazil reflect the companies’ strategic direction for overseas expansion, but are unlikely to have any impact on their top or bottom lines.
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