Alibaba Group Holding Ltd (BABA): Investments Strengthen Growth Opportunities Long-Term

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There was a strong clamor for Alibaba Group Holding Ltd (NYSE:BABA) when it came out with its IPO last year. Several analysts and investors feel that the company stands to gain a lot from the available opportunities in China. However, the company has been facing pressures of a slowdown in the economy back home. Being a leader alone will not allow a company to deliver the expected financial numbers. It needs to address the issues to overcome the slowdown in economic activities and try to overcome the sluggishness so that it can post more solid numbers than any analysts would have ever thought of.

Alibaba Group Holding Ltd (NYSE:BABA)’s management seems to be conscious about this and has been taking effective steps aimed at keeping its leadership position in the e-commerce space. In the last month, it has lined up at least four big investment proposals that will strengthen its position in the e-commerce industry and extend its lead over rivals. This apart, it will also provide additional opportunities for revenue growth. The idea appears to be to remove all obstacles coming in the way of the share price appreciation, as part of its locked shares expiring in the next few months. Let’s take a look at the company’s investment proposals with different firms and separately.

Connected Car

One of the significant investments that Alibaba Group Holding Ltd (NYSE:BABA) has disclosed is the connected car. The e-commerce company aligned with SAIC Motor, which is a biggest car maker in China in terms of sales, to set up a $160 million fund to establish Internet-connected cars. The agreement means that it will join other big companies in the field like Apple Inc. (NASDAQ:AAPL), Google Inc (NASDAQ:GOOGL), and Baidu Inc (ADR) (NASDAQ:BIDU).

Alibaba Group Holding Ltd (NYSE:BABA) indicated that it will establish fresh services with the help of cloud computing, as well as big data, which will improve the consumer’s driving experience. It was a significant first step in the right direction, after the companies formed an alliance last year, to establish an integrated system enabling cars to interact with each other, pedestrians, and the road. Both companies’ agreement also allows them to engage in similar efforts outside China. This means that they can invest in other countries also.

Digital Music

The latest trend is towards digital music. Therefore, the company has selected the right path for its growth avenues. It struck a deal with BMG for digital music distribution. This will enable online entertainment offerings of music. The agreement allows Alibaba Group Holding Ltd (NYSE:BABA) to promote music from BMG and artists in China from its online platforms like Xiami music streaming service. The company will scrutinize and take steps against any infringements of the rights of BMG in China.

Alibaba Group Holding Ltd (NYSE:BABA)’s recent example is undoubtedly an indication of its interest in boosting its alliance with a number of Internet companies seeking to provide more entertainment through the Internet. The country was plagued by unauthorized distribution, as well as rampant piracy. Therefore, even global music companies will be keen to have a tie up with Alibaba.

The music industry is largely untapped in China and it provides potential to mobile media and internet companies to monetize them, according to the CEO of BMG Music, Hartwig Masuch. Alibaba has also struck similar agreements with Tencent Holdings Ltd. and a few others last year. To make its presence further felt, Alibaba Group Holding Ltd (NYSE:BABA) has acquired 16.5% stake in Youku Tudou Inc. and 60% in ChinaVision Media Group, which was later changed to Alibaba Pictures Group. This should allow them to enter streaming TV also sometime soon.

Entertainment Strategy

The entertainment tactics extended beyond music. The acquisition of ChinaVision Media was a clear indication that it would soon enter the streaming space also. The company is yet to put different pieces on the entertainment segment and integrate them. Currently, it appears to have everything in the entertainment segment, be it music, video, or film distributions.

The management is yet to disclose its big ambitions on the grand entertainment portfolio. It can be expected anytime in the coming months after putting them into one combo. Its Alibaba Pictures suffered a loss of $67.3 million, as revenue dropped by nearly two-thirds, due partly to delay or suspension of a number of TV dramas, as well as films. The streaming TV will also be in the pipeline since it has pictures distribution, music, and dramas in its fold.

Health-Care

The billionaire founder of Alibaba Group Holding Ltd (NASDAQ:BABA), Jack Ma, can’t remain quiet witnessing slowing sales growth in e-commerce. Therefore, he decided to strike a deal worth $2.5 billion to bring health-care assets under his roof. The Chinese e-commerce firm appears to know the pulse of the people very well as the Chinese want professional care and it is a booming market. Therefore, it appears to have entered the market at the most appropriate time.

China is struggling with a surge in the number of cases of heart disease, as well as diabetes. The company needed to ramp up its infrastructure on the medical front to provide service to the aging population. Currently, the company is restricted to sell only OTC medicines. Once it gets approval from the government for online sales, it will also sell prescription drugs. It is getting prepared in advance so that the addition could be made in quick time.

Conclusion

Aside from the above, Alibaba Group Holding Ltd (NASDAQ:BABA) has also been focusing on countries like India for growth opportunities through joint ventures. The selection of the industry appears to be so apt and encouraging that the coming years will provide solid growth for the e-commerce company. These measures should ensure that its forward earnings are protected from any weakness in the economic activities in China at least to some extent. These measures will also remove any misgivings about the stock price, even as the expiration of the lock-in period of some shares will happen in August.


Disclaimer: The opinions and data expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment advisory capacity, nor is this an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the company or companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice.

Viraj Shah

Viraj Shah has completed M.Com (Finance) and is currently pursuing his CFP. He tracks US markets along with other global markets like India very closely. He is very passionate about stocks, real estate, and technology. He also believes that money can always be made in the market.

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  • The reality of USMadeMusic is that 90% of it is Independent, not signed to a Major Distributor, Sony, Universal and WEA, and of them BMG is a former major; That now appears to be rebuilding itself into distribution via a digital catalog that is doesn’t have US music. And if they’re signing US talent it’s a secret and the others Majors should be scared. So unless that’s the case this is interesting -it’s not going to change marketshare. For the Record, in the US each week physical units still outsell digital and physical sales are still the majority of overseas sales and it’s the reason why each of the Majors still make billions and digital only companies make .000000016.

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