Year to date, shares of Alibaba Group Holding Limited BABA appreciated 20.3% compared with the Zacks Internet Commerce industry’s gain of 18.2%. This outperformance was largely backed by the company’s near monopoly in the Chinese e-commerce market and strengthening position beyond it.
The company is reportedly investing $145 million (1 billion yuan) in partnerships with some mobile gaming companies to expand mobile game distribution globally.
Per CNBC, the Chinese e-commerce giant is putting cash into a number of e-commerce companies to facilitate distribution of games between China and other parts of the world. The report also states that Alibaba will leverage on its big data capacities to suggest game downloads to customers.
Eyeing an Attractive Industry
According to IDC, China-developed online games grew in double digits, generating $7.2 billion in revenues from overseas in 2016. IDC expects operating revenues of the China gaming market to grow at a compound annual growth rate (CAGR) of 12.2% from 2016 to 2020.
Revenues from mobile eSports games in China are expected to increase to $7.7 billion by 2020 from $2.5 billion today. China’s Virtual Reality (VR) game market size is anticipated grow to $1.5 billion and gaming cloud revenues are likely to touch $525.6 million by 2020.
International players are increasingly trying to team up with local Chinese vendors to overcome China’s policy issues and bring their games to the market. Facebook FB is trying to team up with Chinese game companies. Last year, Alphabet’s GOOGL Google launched a Chinese developers’ website to allow local mobile game developers promote their products in international markets. Being a major player in the market, these trends play into Alibaba’s sweet spot.
Strengthening Position Outside E-commerce and China
Investment in gaming platform would diversify Alibaba’s business as e-commerce growth has slowed down in China. The move can also be a part of Alibaba’s bid to strengthen its foothold in the U.S. We will have a clear idea if the report comes out to be true and the company reveals more details about the gaming firms that it is investing in. In 2014, Alibaba invested $120 million in Kabam, a privately held mobile gaming company in the U.S.
Alibaba Group Holding Limited Revenue (Quarterly)
Alibaba Group Holding Limited Revenue (Quarterly) | Alibaba Group Holding Limited Quote
We note that Alibaba faces tough competition from Amazon AMZN in the U.S. but has successfully prevented Amazon from encroaching into its home turf.
The company has been taking other steps to diversify as well. In March, it bought a majority stake in India’s Paytm E-Commerce. Apart from buying stakes of e-commerce companies and pushing its AliExpress site in emerging markets, the company is also exploring the offline retail space.
In February, the company entered into a strategic partnership with Bailian Group to leverage on its big data capacities and to explore new retail opportunities across outlet design, technology research and development, customer relationship management, supply chain management, payment and logistics.
It has also partnered with Intime Retail Group Co Ltd founder, Shen Guojun, in a $2.6 billion bid to privatize Intime and purchased a stake in grocery chain Sanjiang Shopping Club Co Ltd. It has also invested $1.25 billion in a food delivery service in China called Ele.me.
We also see Alibaba’s growing interest in the global logistics business. The company has been exploring this space with investments in couriers and warehouses in the recent years. It has opened its own logistics service known as Alibaba Logistics.
Recently, the company sealed a partnership with Maersk, a unit of Denmark's A.P. Moller-Maersk and the world’s biggest container shipping line, to offer online reservation of space on Maersk’s vessels. The service eliminates freight forwarders from the booking process and limits their services to haulage.
It seems that Alibaba is leaving no stone unturned, in case the online retail industry hits a roadblock.
Currently, Alibaba carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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