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Alibaba Roundup: 5-Year Targets, Cloud, Partnerships, Ant Stake, Investments

Sejuti Banerjea

Alibaba BABA announced its 5-year targets, its first ML chip, some partnerships, an investment in Taiwanese AR startup and a NetEase unit while the government announced that it would be sending reps.

Long-term Targets

At Alibaba’s annual Investor Day in Hangzhou, Daniel Zhang the CEO replacing Jack Ma, talked about the company’s 5-year target. He said that Alibaba remains as focused on improving the ease of doing business today as laid out in its mission statement 20 years ago.

The annual active consumers have swelled to 860 million (including 730 million in China) as of Jun 30. Alipay annual active users in China number 900 million. There’s naturally a lot of overlap, so total consumers from the two platforms are 960 mmillion.

The company, which operates e-commerce platforms such as Taobao, Tmall, Freshippo and Tmall Super, is targeting a billion annual active consumers by the end of fiscal year 2024 and annual gross merchandise volume (GMV) of 10 trillion yuan ($1.4 trillion).

Increased Government Representation

Hangzhou, a manufacturing hub in the eastern province of Zhejiang, is assigning government affairs representatives to 100 local companies, including private giants Alibaba, beverage giant Hangzhou Wahaha Group Co and automaker Zhejiang Geely Holding Group Co.

The move is ostensibly to facilitate communication and expedite projects, as the city government said on its website. This could include oversight of policies and projects so they continue as desired by the government in view of the slowing economy or the prolonged trade war with the U.S.

Government involvement at any time and any level is not uncommon in the country, as Paul Gillis, a professor at Peking University’s Guanghua School of Management, says. They might be checking whether the Communist party units are working effectively within the companies... While China legitimized capitalism, the level of government influence was never intended to disappear. Occasionally private entrepreneurs forget about this and are reminded of it.”

Officials don’t usually get involved in operations however, as Alibaba said in a statement: "We understand this initiative...aims to foster a better business environment in support of Hangzhou-based enterprises. The government representative will function as a bridge to the private sector, and will not interfere with the company's operations."

In the Cloud

Alibaba technology is being used by the United Nations World Food Programme (WFP) to track the magnitude and severity of hunger across 90 countries, as well as food security, nutrition, conflict, weather and a variety of macro-economic data, applying machine learning and analytics to the data and creating a hunger map.

Its significance is in the availability of real time data on a global, country and subnational level through advanced data visualization tools. The data is available for anyone free. WFP’s goal is to free the world of hunger by 2030.

Separately, Alibaba has announced Hanguang 800, its self-developed chip facilitating machine learning tasks to enhance services provided by its cloud computing unit. The chip is used in its product search and automatic translation services, as well as for personalized recommendations on its ecommerce websites. There are no current plans to commercially sell the chip developed by DAMO Academy (an Alibaba research institute).

SAP Partnership

SAP’s world-leading enterprise cloud solutions, SAP S/4HANA® Cloud and SAP® Cloud Platform are now available on Alibaba Cloud, the data intelligence backbone of Alibaba Group in China. The deal integrates the two companies’ SaaS, PaaS and IaaS solutions and provides for the collaborative development of custom solutions to help Chinese companies accelerate their digital transformation.

Starbucks Partnership

Starbucks’ year-old “new retail” partnership with Alibaba, that integrates platforms and services of the two companies, was enhanced earlier this month. Now, Starbucks customers in China will be able to order by voice, using Alibaba's smart speaker, Tmall Genie. The Starbucks virtual store is selling a Starbucks-themed version of the speaker promising 30-minute delivery.

Equity Interest in Ant Financial

In pursuance of the conditions set forth in a 2014 agreement, Alibaba received a newly-issued 33% stake in Ant Financial, which owns Alipay. As a result, it gave up the 37.5% pre-tax profit it had been receiving from Ant. Alibaba and Alipay have from the start been operating as two closely intertwined companies that were a part of the same ecosystem. Alipay had been sending customers to Alibaba’s ecommerce business, just as the ecommerce business helped create Alipay customers.

This collaboration is likely to get even tighter going forward. Ant Financial also owns Yu'e Bao, the world's largest money market fund, and operates Sesame Credit, a third-party credit rating system.

Funding Taiwanese AR Startup

Alibaba is leading a new funding round in Taiwanese augmented reality (AR) startup Perfect Corp. and bringing its AR technology to Tmall and Taobao. The startup made the announcement although Alibaba and venture capital firm CCV, which also participated, didn’t comment. Financial terms were also undisclosed.

In particular, Alibaba will be using Perfect’s YouCam virtual try-on technology that will allow users to see how a certain shade of lipstick, eyeliner or makeup will actually look on them before buying.

For Perfect Corp, it’s a good deal, because Alibaba is a huge platform, reaching millions of Chinese customers and supporting most major global beauty brands. So the deal increases its scope tremendously.

“This is a classic win-win strategic partnership,” said Jeremy Choy, head of Asia technology mergers and acquisitions at HSBC Holdings Plc, who helped work on the tie-up. “Perfect strengthens its business and network in the important Chinese market and customers gain a better shopping experience.”

Jack Ma Passes the Baton

Jack Ma, the man who took Alibaba from inception to the giant it is today, passed over the position to Daniel Zhang. He currently owns a 5.3% stake in Alibaba worth $24.6 billion. This is 10X the value of his 7.4% stake in 2012 valued at $2.6 billion at the time. During his tenure, Alibaba’s revenue has surged about 1,100% to 378.8 billion yuan ($56.2 billion) in the year ended March 2019.

Buys NetEase Online Mall

Alibaba is taking over Netease’s online luxury retail platform, Kaola for $2 billion in cash. Alibaba and founder Jack Ma’s Yunfeng will infuse an additional $700 million into NetEase Cloud Music’s latest funding round for a minority stake in the company.

Under Alibaba, Kaola will operate independently, but its CEO Zhang Lei will be replaced by Tmall Import and Export general manager Alvin Liu. The deal has been rumored for months but was apparently delayed because of a disagreement of terms. Read more: Alibaba Buys NetEase Unit for $2 Billion.

Recommendations

Alibaba shares carry a Zacks Rank #1 (Strong Buy). Other buy-ranked stocks in the industry include JD.com JD, Stamps.com STMP and MONOTARO MONOY. You can also see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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