Alibaba Group Holding Ltd Is Muddying Its Own Waters

BABA has a variety of projects that make for compelling headlines, but each is also a distraction

By James Brumley, InvestorPlace Feature Writer
alibaba stock

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In July of last year, I compared and contrasted Alibaba Group Holding Ltd (NYSE:BABA) and, Inc. (NASDAQ:AMZN), pointing out to current and would-be owners of BABA stock that the two companies weren’t carbon copies of one another. Aside from the disparate non-e-commerce businesses each outfit operates, Amazon is mostly an online retailer of goods it owns, while Alibaba is primarily a commission-based middleman.

The difference still stands too. But, just for good measure I’d like to push the pendulum back in the other direction again and point out how — against the backdrop of its recent entry into the furniture store business — Alibaba is about to face the same dangerous risk already does. That is, too many projects to manage effectively.

New Ventures for BABA Stock

It was largely overshadowed by news that Alibaba would soon be streaming animated shows and movies made by Walt Disney Co (NYSE:DIS). But last weekend it spent $866 million for a 15% stake in Chinese home improvement retailer Easyhome.

It’s certainly not the first foray BABA stockholders have seen from Alibaba. It owns more than a dozen Hema grocery stores in China, acquired one-fifth of electronics retailer back in 2015, and bought mall operator Intime early last year as part of a grand experiment to meld online and offline shopping in a new, fruitful way.

It’s not a crazy idea.

There’s no denying online shopping has brutalized brick-and-mortar retailing here as well as there — although here more than there. But the convenience of online shopping didn’t have to up-end physical stores. Traditional retailers mostly just didn’t have the vision online players like Amazon and Alibaba’s TMall had, refusing to recognize the two venues could work together.

As evidence of the idea, Amazon is not only now in the grocery business thanks to its Whole Foods acquisition, it’s also building a network of its own “bookstores” as it simultaneously develops its own in-house brands of …. everything. At its current pace, Amazon could eventually be all things to all people, without those people even realizing it. Alibaba appears to be moving down that same path.

I’ll caution to present or prospective owners of BABA stock, however, with the same warnings I gave Amazon shareholders in the middle of last year — casting a wider net isn’t always what it’s cracked up to be. The more projects Alibaba takes on, the less focused it can be on doing any of them exceedingly well.

That’s not necessarily a recipe for disaster. Indeed, it may work wonders if CEO Jack Ma can figure out how to monetize the information the company will be able to gather about mall shoppers, e-commerce fans, grocery customers and now furniture-buyers.

Slippery Slope for BABA Stock?

There’s such a thing as too much information, though. Alibaba could reach a point where its primary purpose is managing the data it has on all of its customers. It could forget the whole point of gathering that data is to find a way of selling more goods.

It sounds like a ridiculous idea, at first. More is always better. The company hasn’t yet lost sight of the fact that commerce rather than revenue is what pays the bills.

It’s a slippery slope, though, when there are too many things to juggle in the wrong kind of environment. Just ask loyal owners of General Electric Company (NYSE:GE). They used to love the built-in diversification of the conglomerates, but the company became too complicated and too slow to manage effectively.

Procter & Gamble Co (NYSE:PG) is another case where diversity was a good thing … for a while. Then it just became a headache.

Never say it can’t happen to Alibaba. It’s not only involved in several brick and mortar business, it also operates Fintech outfit Alipay, partially owns Ant Financial, provides cloud computing services, has a stake in digital video platform Youku and is working on artificial intelligence, just to name a few things on its plate.

That’s a lot.

Bottom Line for BABA Stock

Maybe Ma will be able to successfully turn a bunch of data into a powerful marketing tool. Perhaps Alibaba will be able to use its brick-and-mortar stores to drive foot traffic at its other physical retailing venues. It’s possible Alipay and Ant Financial will eventually allow users to live their entire lives within an Alibaba-sponsored ecosystem.

It’s possible, however, that the company ends up gathering data just for the sake of gathering data. And it’s possible it establishes a retail presence simply for the sake of saying it did. The thing is, each of these projects costs money to take on or develop. There’s a lot to be said for keeping things simple and focused.

It’s just something for BABA stockholders to think about as it gets bigger and looks for more things to do with these profits.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.

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