Why Alibaba Group Has Huge Business Potential

(BUSINESS FINANCE) Alibaba Group Holding Ltd (NYSE:BABA) continues its ritual to surprise investors and analysts with its unexpected decisions. Over the past 15 years, the Chinese retail giant has demonstrated ample amount of shrewdness and courage. Establishing the e-commerce marketplace in China, it has ventured into several projects, stretching from telecommunication to entertainment.

As thanksgiving is just around the corner, Business Finance News explores the underlying tone related to the Chinese retailer. As per the recent updates, Alibaba’s founder Jack Ma is said to be in discussions to purchase a stake in the publisher of Hong Kong’s South China Morning Post. At the same time, the Chinese titan is contemplating of selling its ownership in Chinese technology startup, Meituan-Dianping.

Investors are advised to maintain their bullish stance on Alibaba stock and back the company’s recent moves. At this point in time, it is important for existing and prospective investors to look at the bigger picture. Business Finance News dissects the diamond in the rough.
Meituan-Dianping

As per the reports, Alibaba is seeking to sell its 7% ownership for about $1 billion in Meituan-Dianping, created by a merger among competing startups: Dianping Holding Ltd. and Meituan.com. The entity is China’s leading provider of movie ticketing, restaurant bookings, and other on-demand facilities.

Alibaba’s recent move comes at a time, when its rival Internet company Tencent Holdings ADR (OTCMKTS:TCEHY) is planning to buy a $1 billion share in Meituan-Dianping. The purpose of exit from the startup is to focus on its own Online-to-Offline (O2O) platform, Koubei.

Koubei – meaning “word-of-mouth reputation” in Chinese, is a joint project between Alibaba and Ant Financial, its financial affiliate. Business Finance News believes that the current environment provides Alibaba with an opportunity to focus more on Koubei, as the market has become more saturated and different O2O players are offering aggressive discounts. The retailer can devote more resources to Koubei which is integrated into its ecosystem in payment and e-commerce. Given Alibaba’s strength in mobile traffic and payment, many expect the company will be able to motivate merchants to gravitate towards Koubei over time.

Over the past few months, China’s O2O business has become less competitive as it used to be several years ago, owing to the recent amalgamation of the market. At present, only a few companies control most of the market share. Business Finance News believes that it has become essential for Alibaba to gain a foothold and evade the threat of dwindling behind its competitors. As the e-commerce marketplace begins to become more consolidated, it creates a prospect for Alibaba to leverage its forte in O2O assets, market power, user base, and mobile payment, to autonomously scale up its services.

Business Finance News believes that it is unlikely that Alibaba was extracting meaningful benefit from Meituan-Dianping, as it only had a 7% stake in the entity. Its exit from the company is unlikely to have any significant effect on its Profit and Loss (P&L) statement.

On a separate note, Meituan-Dianping to finance its growth plans, is seeking additional funds through its common shareholder equity. The report suggests that it is planning to raise about $3 billion, which will make it a $20 billion company.
South China Morning Post

Recent reports suggest that Jack Ma is in discussions to acquire South China Morning Post, which was amongst one of the world’s most lucrative newspapers, however, the company is faced with declining earnings, and dwindling circulation of newspapers as readers move online.

If Mr. Ma is successful to purchase South China Morning Post, he will be following in the footsteps of Facebook Inc.’s (NASDAQ:FB) co-founder Chris Hughes, who acquired the US magazine The New Republic. Amazon.com, Inc. (NASDAQ:AMZN) CEO and founder Jeff Bezos also bought The Washington Post in 2013, for about $250 million.

Business Finance News believes that Alibaba will have to come up with its own ideas of revenue-generation if it acquires South China Morning Post, as the publisher is struggling to survive in the competitive market.
Stock Movement

As the news related to South China Morning Post and Alibaba’s exit from Meituan-Dianping broke, its stock started to trade in the green territory. At Monday’s close, it soared about 1.7% at $81.31 to have a market capitalization of $200.87 billion.

Alibaba had the honor to conduct a massive $25 billion blockbuster initial public offering (IPO), however, its stock has continued to disappoint investors since then, as its worth has plunged more than 13%.

There were various factors which obstructed Alibaba stock’s ascending movement. Its volatile movement can be mainly due to the selling of counterfeit goods on its e-commerce platform, unable to live up to analysts and investor forecasts, and regulatory restrictions in China.

In order for the Chinese titan to regain shareholders confidence, it is important for it to realize that it has to be more transparent with its aggressive strategy. Alibaba needs to spell out the benefits it has earned from its investments, as its investors seem to be concerned about a clear course to these deals.

The sell-side notes from numerous rating agencies represent a positive viewpoint on Alibaba stock. According to Bloomberg, 41 out of 47 analysts have recommended the stock a Buy, while only six suggested a Hold, with none propose a Sell. The 12-month consensus target price stands $95.30, signifying a return of almost 17% over Monday’s price. Credit Suisse analyst Dick Wei rates Alibaba stock as an Outperfrom with an anticipated price objective of $99. Furthermore, Suntrust Robinson Humphrey analyst Robert S Peck recommends Alibaba stock as a Buy with a price target of 100.