Alibaba raises its stake in Lazada to 83 percent

29 Jun 2017

Alibaba Group (NYSE: BABA), parent company of used- and new-goods site Taobao and the stuff app Xianyu, continues to shell out billions on the Southeast Asian online shop Lazada.

Yesterday, Hangzhou-based Alibaba Group (e-commerce, cloud services and entertainment) announced it would be upping its stake in Lazada from 51 to 83 percent by investing $1 billion U.S. in the business. The deal valued Lazada at $3.2 billion U.S..

Alibaba acquired the shares from Germany’s Rocket Internet (in which Alibaba is also a shareholder), and the Singapore government’s investment arm, Temasek Holdings. The Lazada management team is now the only investor outside of Alibaba to hold stock in the company.

Daniel Zhang, CEO of Alibaba Group

Alibaba made an initial investment in Lazada of $1 billion U.S. in April 2016. At the time, Lazada was valued at $1.5 billion U.S..

“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.”

Facing an increasingly saturated market in China, Alibaba is known to be eyeing Southeast Asia, where e-commerce is still in its early stages. Amazon (NYSE: AMZN) has, however, also announced plans to expand into Southeast Asia, setting up a major struggle between the two giants in the region.

Lazada currently has operations in six countries – Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam. It crossed the $1 billion U.S. threshold in gross merchandise volume (GMV) in 2015, but also incurred sufficient operating losses to precipitate Alibaba’s initial cash injection.

The news continues a strong H1 of FY2017 for Alibaba, which earlier this month estimated full-year revenue to grow by between 45 and 49 percent – a number which exceeded analysts’ estimates by 10 percentage points. According to Financial Times, the news “elicited gasps of ‘wow’ and loud clapping from investors at the e-commerce group’s Hangzhou headquarters” (we reported here). 

Since the initial investment in 2016, the two platforms have begun to roll-out cooperative ventures, including the Oriental Pavillion” platform on the Lazada site, which features Chinese brands, such as Semir, QCY, Bluedio and Puppyoo in partnership with Alibaba’s TMall platform. 

Alibaba exec: ‘Chinese consumers are no longer interested in counterfeits’

Responding to a question from a CNBC reporter at the World Economic Forum’s “Summer Davos” meeting in Dalian, Gao Hongbing, Alibaba Group vice president, said Chinese consumers had “lost interest” in counterfeit goods, and were now more interested in genuine items.

Gao, who also heads up Alibaba’s market research division AliResearch, provided no evidence to support his claims.

Gao Hongbing

The statement reflects the sharp turn Alibaba has made on the issue of fake goods, ever since the platform was unexpectedly, and in Alibaba’s words “unreasonably,” returned to the “notorious markets” list of the U.S. Trade Representative’s Office (USTR) in December 2016.

In June 2016, Alibaba’s celebrity CEO Jack Ma made the explosive claim that the fake goods on Taobao were “better quality than the real thing” – the kind of comment which likely pricked the ears of the USTR and its backers. Just a year later, Alibaba is now claiming that Chinese consumers aren’t interested in fakes anymore.

Taobao parent Alibaba has been waging a public relations offensive ever since the USTR list was released. In March the company called for tougher laws and heavier penalties against individuals selling counterfeit goods in China. Alibaba has also been cracking down hard – and publicly – on counterfeit-goods sellers using the Taobao platform. In May, it secured its first criminal convictions, against two sellers of counterfeit liquor in Guangdong province.

Taobao lagged relative to Alibaba’s less established ventures in FY2016. The gross merchandise volume (GMV) transacted on Taobao Marketplace in FY2016/17 added up to 2.2 trillion RMB ($320 billion U.S.), an increase of “only” 17 percent year-on-year. In comparison, “core commerce”, Alibaba’s biggest segment, recorded 47 percent revenue growth to $4.6 billion U.S..

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Tom Marling

Tom is a PhD candidate in Chinese History at Hong Kong Baptist University, and former PR consultant in Mainland China. He joined the AIM Group in 2016 as a writer/analyst.