Alibaba Acquires Chinese e-commerce Firm Kaola for $2bln

Alibaba Acquires Chinese e-commerce Firm Kaola for $2bln
September 9, 2019

 

China’s e-commerce giant Alibaba Group Holding Limited (NYSE: BABA) has announced that it is acquiring Kaola, a cross-border e-commerce business unit, from the Nasdaq-listed Chinese internet enterprise NetEase for roughly $2 billion. The acquisition would enable Alibaba to further consolidate its operations. Following the announcement, the shares of Alibaba closed Friday’s trading session at $176.69, down $2.25 or 1.26% from earlier close.

Kaola literally means koala, a name chosen by NetEase to encourage online users to stay “lazy and comfortable.” The e-commerce platform offers imported goods such as clothes, sports accessories, and consumer electronics to name a few. Kaola is one of the biggest e-commerce platforms in China to offers imported goods, in addition to JD Worldwide of JD.com and Tmall Global of Alibaba.

Following the acquisition, Kaola will continue to operate as an independent entity and use the same brand name but will appoint Alvin Liu, general manager of Tmall Import and export, as the CEO. Having Tmall Global and Kaola under its umbrella will enable Alibaba to have a considerable share of cross-border e-commerce industry.

Notably, Alibaba has invested in NetEase Cloud Music as well. In a note to clients, Jefferies analysts have stated that the investments will help NetEase to “further optimize its costs while Alibaba strengthens its leadership in cross border e-commerce.”

Research firm eMarketer, in its June report, has forecast China, the world’s largest e-commerce market, to record online sales of $1.935 trillion, almost thrice than that of the US. Daniel Zhang, CEO of Alibaba Group, has stated that the company is optimistic about growth prospects of China’s foreign goods e-commerce market. Zhang noted that the online market still “remains in its infancy with great growth potential.”

Zhang further said, “With Kaola, we will further elevate import service and experience for Chinese consumers.”

Earlier in 2019, there were reports of a merger between Kaola and Amazon’s joint venture subsidiary in China. In August, Alibaba reported June quarter results that surpassed analysts’ estimates. However, the quarterly results indicated a slowdown in sales growth. During the recent quarter, the growth was led by Alibaba’s core commerce business, which includes Tmall and Taobao shopping platforms, and thriving cloud division. Notably, annual active consumers reached 674 million on China retail marketplaces, up 20 million on y-o-y basis. More importantly, a majority of those consumers were from less-developed cities.

Alibaba, along with Yunfeng, is also investing $700 million in NetEase Cloud Music, a music streaming service operated by NetEase.

NetEase CEO William Ding opined that the deal “will allow NetEase to focus on its growth strategy, investing in markets that allow us to best leverage our competitive advantages. As the controlling shareholder of NetEase Cloud Music, we will continue to fully support the growth of this business, helping it to realize its strategic goals in the music industry.”

The acquisition news is expected to keep the stock bullish in the short-term.

The historical price chart indicates that the stock is consolidating at 175 levels. Furthermore, the stock is also trading above its 50-day moving average. The MACD indicator is having a positive reading. As a result, we can expect a rally to begin soon.

bab - technical analysis - 9th Sept 2019

Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.

Richard W

Richard W

Richard is the guy who know everything there is about the financial industry, working in a top firm for over 15 years, he will give the lowdown on some of the biggest companies in the world


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