Alibaba Flexes Muscles With $2-Billion Buyout Of Rival Kaola

FILE PHOTO: A logo of Alibaba Group is seen at an exhibition during the World Intelligence Congress in Tianjin, China May 16, 2019.
(Photo: REUTERS/Jason Lee/File Photo)

Alibaba Group Holding Ltd (BABA) will reportedly buy online rival Kaola to the tune of $2 billion, as part of the company's efforts to strengthen its influence in the rapidly-expanding e-commerce business.

Launched in 2015, Kaola is the e-commerce unit of NetEase that is engaged in the sale of home appliances and other products, including apparel, maternity and infant products, and personal care items. The acquisition may combine Kaola with Alibaba's Tmall International Platform, sources with knowledge of the matter said on Wednesday.

The news comes following robust first-quarter 2020 sales by Alibaba, boosted by a steady rise in fundamental Cloud and e-commerce businesses, in addition to improving figures in metrics.

Analysts said the planned merger would represent a move toward business integration in the e-commerce market of China. A team-up of the economy's leading cross-border companies would set the stage for a single market empire.

The consolidation could also allow Alibaba to capitalize on the deal to outplay competitor Pinduoduo, which has also shown a big interest in acquiring Kaola to bolster its cross-border reach and make the most of what the globe's second biggest economy offers.

Based on the latest figures by Analysis, Tmall International comprised 33 percent of China's cross-border market in the first three months this year, followed by NetEase Kaola, with 25 percent.

Growth of NetEase's e-commerce ventures slowed to 63 percent on the same period last year, after advancing 276 percent and 161 percent in 2016 and 2017, respectively. The rally simmered anew to 20 percent in the next three months, NetEase financial records showed.

NetEase Kaola, widely known as the largest shopping site in China, has always been a stiff competitor of Alibaba's Tmall Global. Based on a report by iMedia Research Group, NetEase Kaola cornered 28 percent of shares in the e-commerce market last year, while Tmall Global only had 24 percent.

Therefore, the planned acquisition will greatly diminish the level of rivalry for Alibaba, and make it the largest shopping portal in China.

Not surprisingly, the online retail sector of China is seeing an aggressive climb courtesy of broader access to the internet and use of smartphones. According to a report by Forrester, China's internet-based retail business is seen to hit the $1.9 trillion mark by 2022.

Moreover, market observers said that the Chinese e-commerce market will contribute 57 percent to global online retail profits next year. Further, the country's contribution is seen to reach 64 percent by 2022. Thus, analysts believe that with the planned buyout, Alibaba will be able to bolster its revenues in the years to come.

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