How Alibaba Will Benefit from the Acquisition of Youku Tudou?
Online Streaming Updates: Acquisitions and Launches
Acquisition of Youku Tudou
On October 16, Alibaba (BABA) announced its intention to acquire the remaining Youku Tudou (YOKU) shares that Alibaba does not already own. It was an all-cash transaction, at $26.60 per share. Alibaba currently owns 18.3% of Youku.
Alibaba has long been trying to diversify into China’s entertainment space. Last year, Alibaba acquired a movie studio in Hong Kong. Another Chinese player, Tencent Holdings (TCEHY) launched its movie division last year, called Tencent Movies+. There are other players, such as Baidu (BIDU), and Sohu (SOHU), that have increased their investments in China’s online video market, a subsector within the broader entertainment market.
Netflix (NFLX) is another player that is planning modest investment in China, aiming to enter the country next year. According to a January 2015 report from the China Internet Network Information Center, and as indicated by the graph above, 72% and 71.2% of Chinese users prefer to watch online videos on their smartphones and laptops, respectively. This information bodes well for Alibaba, as through its acquisition, it would have access to Youku’s significant smartphone user base.
Benefit of the acquisition for Alibaba
Alibaba Chief Executive Officer Daniel Zhang has stated that “digital products, especially video, are just as important as physical goods in e-commerce, and Youku’s high-quality video content will be a core component of Alibaba’s digital product offering in the future.” Alibaba has stated that it believes the deal would complement the company’s e-commerce business as well.
For example, Youku offers a “buy-what-you-watch” service that lets viewers buy the clothes that the actors on a show are wearing. There is a strong possibility that with smart advertising and promotional campaigns, these viewers could turn to Alibaba’s e-commerce site for these purchases.
This deal would also allow Alibaba to show its original content from Alibaba Pictures Group on Youku and earn revenues in the process. You can get exposure to Alibaba by investing in the Vanguard FTSE All-World ex-US ETF (VEU), which has 3.2% exposure to the company.
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