Alibaba Group Holding Ltd (BABA) stock has been one of the most popular ways to invest in China’s growing e-commerce market. The leader in customer to customer e-commerce averages over 14 million shares traded per day.
Investing in BABA is a great way to tackle China’s growing e-commerce, but it also offers other segments investors may be missing.
For instance, Alibaba stock has a hidden gem — its growing movie segment — that investors may be missing.
Lights, Camera … Alibaba?
China’s box office is booming and is on pace to surpass the United States’ dominance in theatrical revenue. Through the first three months of 2016, China’s box office has seen a 50% jump in sales to $2.2 billion. This is similar growth to last year and puts the country on pace to see $10.2 billion in box office receipts.
In 2015, China saw its box office total increase 49% to $6.8 billion. The North American box office had receipts of $11 billion for 2015.
It’s hard to believe that China’s box office was worth only $1.5 billion five years ago.
The good news for Alibaba stock is that the box office is being dominated by local Chinese films (62% of 2015 box office).
In 2014, BABA entered the movie industry with a bang, paying $804 million to acquire a majority stake in Chinavision Media Group. At the time, Chinavision was a leading film and television producer and distributor in Hong Kong. That was the entry that sparked Alibaba to shell out billions of dollars over the last two years to create a massive entertainment ecosystem.
Alibaba has invested in Chinese productions and also brought U.S. blockbusters to the country — it was behind the last Mission Impossible movie getting a release in China and becoming a big hit. The company also had a deal with Lions Gate Entertainment Corp. (USA) (LGF) to bring The Hunger Games and Divergent franchises to China.
Alibaba invested $380 million in Chinese production company Enlight back in 2015. The two companies will now co-produce several films and utilize each other’s resources. Alibaba is the second largest shareholder in the company. The two plan on also creating an over-the-top subscriber service and creating a retail outlet business with film merchandise.
Enlight plans on making 32 movies from 2014 through 2017.
That’s the Ticket for BABA Stock
Along with film distribution deals, Alibaba is going after another area of growth for the country: online ticket sales. In June of 2015, BABA bought Guangdong Yueke Software Engineering for $134 million. The acquired company sells tickets for around one quarter of Chinese movie theaters.
Alibaba also spent $520 million later in 2015 to buy additional online ticketing and movie crowdfunding platforms. Nearly 70% of Chinese box office receipts in some areas come from online ticket purchases, much higher than the 15% rate here in the United States.
Alibaba was involved in the take-private deal for Bona Film Group Ltd (ADR) (BONA), which had been one of the few ways for American investors to easily invest in China’s box office growth. Bona Film Group is a film distributor in China and also operates theaters across the country. In its recent third quarter, Bona saw movie theater revenue increase 55% to $33.8 million. Alibaba invested $86 million in the buyout and will own 10% of the company according to sources.
Alibaba stock could soon be reacting to the success of the Chinese film industry. Alibaba is linked to some of the top Chinese stars, and investing with them accordingly. This includes projects with top Chinese directors and stars like Jackie Chan. Armed with a massive amount of money from the IPO, the film segment is spending big to turn Alibaba into the biggest entertainment company in China.
Bottom Line for Alibaba Stock
BABA is quickly growing a diversified entertainment sector within its overall business, and the growth of the Chinese box office will benefit Alibaba over the next few years. With its large user base across social platforms, it is quickly able to use its massive scale to dominate the movie business through partnerships and advertising.
Youku Tudou, an Alibaba company, has 500 million registered users. Sina Weibo, a minority-owned company similar to Twitter Inc (TWTR), has 144 million active monthly users. Alibaba is able to reach a large audience through these platforms and promote its movies aggressively.
So while the movie business won’t be Alibaba’s biggest segment, it is another reason to buy BABA shares.
As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.
