E-COMMERCE: Alibaba Drives Into SE Asia, Car Business
Just a day after fast-growing car services firm UCar confirmed a major new tie-up with e-commerce giant Alibaba (NYSE: BABA), we’re getting more details about the new alliance that appears to auger an end to Alibaba’s previous relationship with homegrown Uber rival Didi Kuaidi. At the same time, Alibaba has just announced its largest overseas purchase ever by paying $1 billion for a controlling stake of Southeast Asian e-commerce specialist Lazada.
These 2 news items continue a recent acceleration in M&A activity for the hyperactive Alibaba, which is quite in line with the hyperactive nature of its founder and chief pilot Jack Ma. This kind of cyclical hyperactivity has become the norm for Alibaba in recent years. It typically sees the company’s high-profile activity go into overdrive for a year or so, only to come to a sudden halt when things become overheated and problems emerge.
The last such cycle occurred in 2013 and 2014 in the run-up to Alibaba’s record-breaking $25 billion New York IPO, which capped a year of frenetic activity for the company. That was followed by an overheating that saw the company get hit by slowing growth and a major scandal involving fake products being sold over one of its most popular online malls.
With those scandals now largely in the rear-view mirror, Alibaba and Ma are now going back into hyperactive mode with a steady string of new mega deals. The newest of those is relatively straightforward, and has Alibaba buying about two-thirds of Singapore-based Lazada for about $1 billion. (English article; Chinese article)
Founded by Germany’s Rocket Internet in 2012, Lazada operates online shops in most of Southeast Asia’s largest markets, including Thailand, Malaysia and the Philippines. Alibaba will spend $500 million for new shares of Lazada and another $500 million for shares from existing stakeholders, giving Lazada a market value of about $1.5 billion. Alibaba also has an option to buy up more of the company completely in the next 12-18 months.
Lazada is growing quickly, with revenue up 80 percent to nearly $200 million in the first 9 months of last year. But it’s also losing big money, with operating profit doubling to more than $200 million over that period. My main observation in this case is that Rocket is probably selling now because Alibaba is offering a very nice price, and also because it isn’t convinced that Lazada has a bright future. Meantime, the deal is in line with Alibaba’s current hyperactive mode, and is also aimed at showing investors it can expand outside its slowing home market.
UCar Raises Funds, to List
Next we’ll look quickly at the UCar deal, though in less detail since I just wrote about it yesterday. (previous post) The latest reports have UCar, an affiliate of Hong Kong-listed car rental specialist Car Inc (HKEx: 699) announcing it has just raised 3.68 billion yuan ($550 million), valuing the company at 29 billion yuan. (English article; Chinese article)
As part of a recent overhaul of UCar, Alibaba previously purchased about 10 percent of the company and later sold those shares to a couple of private equity companies with close ties to Jack Ma. UCar announced a major tie-up with Alibaba earlier this week, saying it was part of a broader alliance that would include a wide range of car-related products and services. I commented that the new alliance could signal that Alibaba is preparing to dump its existing stake in Didi Kuaidi, China’s leading provider of private hired car services.
As part of its latest announcement, UCar is also saying it is preparing to list its shares on China’s over-the-counter (OTC) board in Beijing, often called the New Third Board. That board is the only one in China where money-losing companies can list, and Jack Ma has already listed his money-losing soccer team there and might consider a similar listing for Alibaba-affiliate Ant Financial. Look for this string of hyperactive deal-making by Alibaba to continue through the rest of this year, potentially providing some upside for its stock as investors get excited about all the new activity.
(NOT FOR REPUBLICATION)
