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Alibaba (BABA) Expands in Digital Media Via Yinhekuyu Buyout

Zacks Equity Research

Alibaba Group Holding Limited BABA is looking to expand foothold in the digital media and entertainment industry.

In this regard, the company recently announced that its subsidiary, Alibaba Pictures has acquired a majority stake in Yinhekuyu Media for about $57 million (RMB400 million).

Yinhekuyu Media is a producer of video content in China. Its content includes short videos, films and web TV dramas. In 2016, Alibaba’s video-streaming platform Youku had worked with Yinhekuyu to produce a popular entertainment TV show in China, namely Mars Intelligence Agency.

Alibaba Pictures expects the latest acquisition to further enhance its production team. In addition, the deal is expected to enable greater collaboration with other businesses, which include ticketing and promotion unit Tao Piao Piao and Alifish, its derivative products unit.

We believe Alibaba’s latest deal is in line with its strategic focus on digital entertainment. The latest move should expand the company’s user base and help it fend off competition.

In the past year, Alibaba has lost 1.4% compared with the industry’s decline of 6%.

Alibaba Group Holding Limited Price and Consensus

 

Alibaba Group Holding Limited Price and Consensus

Alibaba Group Holding Limited price-consensus-chart | Alibaba Group Holding Limited Quote

Looking Ahead

The China-based e-commerce giant intends to fortify presence in the digital media and entertainment industry.

Alibaba Pictures, listed in 2016, operates under the Digital Media and Entertainment business. The segment operates businesses through media properties that include UCWeb, YoukuTudou, OTT TV service, Alibaba Music and Alibaba Sports.

In fiscal third-quarter 2020, revenues in Digital Media and Entertainment were RMB7.4 billion (US$1.06 billion), reflecting an increase of 14% on a year-over-year basis. The segment’s top-line growth was driven by consolidation of Alibaba Pictures.

The latest deal is reflective of the China-based Internet giant’s continuous efforts to make a mark in online entertainment, as it seeks to attract more users to its platforms, thereby driving top-line growth.

However, over the past two years, China’s entertainment sector has been facing a lot of issues from new industry regulator, growing content controls, a new tax regime, among others. Moreover, the coronavirus pandemic has resulted in shutdown of production, making the situation all the more worse.

Nevertheless, growing endeavors by Alibaba could help the company battle the situation on the back of new strategies that include partnerships and acquisitions.

Zacks Rank & Other Stocks to Consider

Currently, Alibaba has a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader technology sector include Stamps.com Inc. STMP, eBay Inc. EBAY and Atlassian Corp. TEAM. While Stamps.com and eBay sport a Zacks Rank #1 (Strong Buy), Atlassian carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Stamps.com, Atlassian Corp. and eBay is currently projected at 15%, 22.3% and 11.3%, respectively.

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