Alibaba Group Holding Ltd (NYSE:BABA) announced that it will invest approximately USD1 billion to increase its stake in Lazada Group, the leading e-commerce platform in Southeast Asia, from 51% to approximately 83%. This transaction demonstrates the continued success of Lazada’s business, Alibaba’s confidence in the growth potential of the Southeast Asian markets and its commitment to the region as part of its global strategy.
Alibaba will purchase the shares of certain Lazada shareholders at an implied valuation of USD3.15 billion for the company, reflecting a significant increase in the value of Lazada since Alibaba first acquired its majority stake in April 2016. The transaction will increase Alibaba’s total investment in Lazada to over USD2 billion. Lazada will continue to operate under the same brand following this investment.
Alibaba’s investment in and collaboration with Lazada have been an important part of expanding Alibaba’s global footprint, providing it with unrivalled access to consumers in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. With only 3% of the region’s total retail sales conducted online, Southeast Asia is expected to offer tremendous growth potential.
With Alibaba’s scale, e-commerce know-how and technology expertise supporting the execution of Lazada’s management team, the two businesses have successfully developed a vibrant e-commerce gateway, giving brands and sellers access to the 560 million consumers in the region. The cooperation has also enabled Lazada to invest further in the marketplace, technology, payments and logistics, greatly enhancing its services and providing an unparalleled consumer experience for online shoppers, as well as critical support for the region’s merchants, many of whom are small businesses.
“As a market leader, Lazada has demonstrated its ability to execute and further lead the region in products and services with the best consumer experience in Southeast Asia while growing a strong ecosystem that supports small businesses going online,” said Daniel Zhang, CEO of Alibaba Group. “The e-commerce markets in the region are still relatively untapped, and we see a very positive upward trajectory ahead of us. We will continue to put our resources to work in Southeast Asia through Lazada to capture these growth opportunities,” he added.
Maximilian Bittner, CEO of Lazada Group, said, “I couldn’t be more excited to deepen our relationship with Alibaba. With their support, we will continue to empower brands and sellers to offer a wide selection of unique assortment to consumers across Southeast Asia while delivering an exceptional customer experience backed by our best-in-class logistics network.”
During the past 12 months, both Lazada and Alibaba worked on a number of initiatives to advance e-commerce in Southeast Asia, endeavoring to lower barriers and facilitate borderless commerce. These initiatives include the establishment of an e-fulfillment center in Malaysia which forms part of Alibaba’s Electronic World Trading Platform (eWTP) strategy, advancing “Thailand 4.0”, and launching Taobao Collection in Singapore and Malaysia allowing local customers to shop for high quality products from China.
Shares of Alibaba closed yesterday at $141.53, down $1.20 or -0.84%. BABA has a 1-year high of $148.29 and a 1-year low of $75.50. The stock’s 50-day moving average is $129.55 and its 200-day moving average is $109.62.
On the ratings front, Alibaba has been the subject of a number of recent research reports. In a report released yesterday, Barclays analyst Gregory Zhao maintained a Buy rating on BABA, with a price target of $175, which represents a potential upside of 24% from where the stock is currently trading. Separately, on the same day, J.P. Morgan’s Alex Yao assigned a Buy rating to the stock and has a price target of $190.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Gregory Zhao and Alex Yao have a yearly average return of 4.5% and 8.4% respectively. Zhao has a success rate of 57% and is ranked #2478 out of 4588 analysts, while Yao has a success rate of 48% and is ranked #1049.
Sentiment on the street is mostly bullish on BABA stock. Out of 17 analysts who cover the stock, 15 suggest a Buy rating and 2 recommend to Hold the stock. The 12-month average price target assigned to the stock is $161.29, which represents a potential upside of 14% from where the stock is currently trading.