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Alibaba to Invest $1.25B in China's Food Delivery App Ele.me

Zacks Equity Research

Online-to-offline commerce, or O2O, is deemed to be the next big thing in China’s e-Commerce space. Internet consultancy, iResearch, estimates that the country’s O2O market will grow by a third this year to 309 billion yuan, as quoted by Barclays report in July.

Earlier this year, Alibaba BABA and its finance affiliate, Ant Financial, agreed to invest around $483 million each in a new venture — Koubei.com — which will initially focus on China’s fast growing food-delivery market. iResearch estimates that China’s O2O food delivery market will grow at a rate of 30% per year and cross the $32 billion mark by 2017.

Alibaba’s latest push in this space?

According to Caixin, the Chinese e-Commerce giant has agreed to invest $1.25 billion in Chinese online food delivery service, Ele.me.

The report also stated that Alibaba will receive 27.7% stake in Ele.me, becoming its largest shareholder.

However, both the companies declined to comment.

Looking Ahead

The new program will offer a competitive advantage to Alibaba in China's rapidly increasing e-Commerce arena especially against the country’s search giant, Baidu BIDU. Baidu is also investing heavily to develop its O2O retail capability.

In August last year, Tencent TCEHY declared a joint venture with Baidu and Wanda, the country’sbiggest property developer, allowing diners to place orders online and pick them up from nearby stores. This alliance brought O2O commerce, a fast growing segment in China’s rapidly evolving business arena, into the limelight.

According to management consulting firm AT Kearney, China's e-Commerce market is projected to grow at a yearly rate of 25% over the next few years, from $390 billion in 2014 to $718 billion in 2017.

Currently, Alibaba has a Zacks Rank #3 (Hold).

Investors can consider Amazon.com Inc. AMZN, as it holds a Zacks Rank #2 (Buy).

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