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Alibaba Expands Lazada Stake, Boosts Southeast Asia Presence

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Alibaba Group Holding Ltd.BABA has agreed to pay an additional $1 billion to increase its stake in e-commerce firm, Lazada.

This investment will increase Alibaba's stake in Lazada from 51% to 83%. In April 2016, the company had invested $1 billion for a controlling stake in Lazada.

We note that Alibaba has had an impressive run on the bourse in the last one year. The stock has gained 84.6%, better than the Zacks Electronic - Commerce industry's growth of 54.0%. We expect international expansion to back the momentum going forward.

Headquartered in Singapore, Lazada is a Southeast Asian e-Commerce company founded by Rocket Internet in 2012. The company works with third-party players and develops its own logistics to improve goods delivery. It operates retail websites in Indonesia, Malaysia, Singapore, Thailand, Vietnam and the Philippines.

What Keeps Alibaba's Interest Alive in Lazada?

Historically, Southeast Asian countries have attracted investors from across the globe, thanks to solid growth rates, booming populations and generally good governance. In fact, Southeast Asia has started attracting attention due to increasing growth of internet services.

With this recent investment in Lazada, Alibaba will increase its presence in a nascent but populous online retailing market. According to a 2016 report, co-authored by Google, e-commerce in Southeast Asia is on track to grow and reach $88 billion by 2025 from $5.5 billion in 2015. As of now, only 3% of all commerce is carried out online in the region.

The South East Asian e-Commerce market is still at a nascent stage but has enormous growth opportunities, which is a huge advantage for Alibaba.

Daniel Zhang, CEO of Alibaba Group said, "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".

Also, Alibaba is dependent on China for major portion of its business where growth has already reached its peak. Hence, Alibaba is trying to diversify its revenue and lessen its reliance on its business in China. To counter this and fend off further competition, Alibaba is focusing on international expansion. Its current strategy is to generate earnings through investment outside China where it's up against well-established players like eBay EBAY and Amazon AMZN , which have been witnessing great success.

So, the additional investment in Lazada comes at an opportune time. The deal is in line with Alibaba's Chairman Jack Ma's goal of getting at least half the company's revenues from overseas over the next few years. Recently, Alibaba provided strong sales growth outlook that was well above analyst projections. The company expects revenue growth in 2018 to be in the range of 45- 49%, way above analysts' estimates of 37%.

Given that Lazada currently serves six countries in Southeast Asia, the deal will expand Aliababa's sales in these markets.

To Conclude

Alibaba has been focusing on both developing and mature e-Commerce markets outside China where it already has 80% share.

In doing so, Alibaba has been investing in relatively nascent and growing markets like India and other untapped South Asian markets.

Getting in early will enable the company to capture share, thus generating higher revenues and profits.

Zacks Rank & Stock to Consider

Currently, Alibaba has a Zacks Rank #1 (Strong Buy). Another stock worth considering in the broader technology sector is Autobytel Inc. ABTL with the same Zacks Rank as Alibaba. You can see the complete list of today's Zacks #1 Rank stocks here .

Autobytel delivered a positive earnings surprise of 41.98%, on average, in the last four quarters.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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