If there was any doubt that Alibaba Group Holding Ltd (NYSE:BABA) was serious about spreading its wings outside of China and diving deeper into Southeast Asia, it was wiped away recently. Alibaba stock will benefit from a greater commitment in Southeast Asia.
The ecommerce giant committed another $2 billion towards its ownership of Lazada, which is an ecommerce marketplace currently operating in Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.
As for what it means to existing and prospective owners of BABA stock, it’s a bigger deal than one might think. Consumerism is alive and well in that part of the world as well, and getting real big, real fast. That’s why rivals like Amazon.com, Inc. (NASDAQ:AMZN) and JD.Com Inc (ADR) (NASDAQ:JD) are also taking aim at the area.
It’s unlikely either will be able to do what Alibaba could do in that part of the world though.
The Right Target at the Right Time for Alibaba Stock
If the name rings a bell with Alibaba stock holders, there’s a reason. Alibaba bought a controlling 51% interest in Lazada back in 2016 to the tune of $1 billion, and ratcheted up its stake to 83% of the company for another $1 billion last year.
With another $2 billion on the table, Alibaba likely, effectively controls the company; it at least has enough control to name a new CEO. Lucy Peng will be taking the helm.
That’s a name that may seem familiar as well. She’s one of Alibaba’s founders, and between 2010 and 2016 she was the CEO of Alibaba’s Alipay, which eventually became Ant Financial.
It’s not a bad market to focus on, particularly now that growth is apt to slow on other fronts as saturation and competition become palpable headwinds.
That’s not necessarily been the case until recently. Though most of the 640 million consumers in Southeast Asia now have access to the internet, there were only 70 million internet users as of 2015. Now there are 330 million of them, with more on the way.
This crowd of consumers love their mobile devices too, adopting smartphones about as fast as any part of the world has ever seen, and using more time on internet with their mobile devices than any other sliver of consumers in the world.
And yet, as Peng pointed out in the announcement, only three percent of the region’s retail sales are done online.
That’s a big opportunity.
Alibaba Stock and the Competition
It’s an opportunity that’s so big, in fact, that others are rapidly trying to get a tighter grip on it.
Yes, Amazon is one of those competitors. The only geographical overlap right now is in Singapore, where it launched a two-hour delivery service for its goods last year. Though Amazon has yet to push deeper into surrounding areas, it’s apt to only be a matter of time.
As Ken Mandel, president for innovation and commerce in Asia Pacific at Publicis Media, said of Amazon’s Singapore initiative at the time, “What’s brewing is a war, a massive face-off between Alibaba and Amazon. Because Alibaba owns Lazada, they are going to certainly be a force to be reckoned with.”
Mike Booker, Partner at Bain & Company, also explained “The main thing to watch here is this sort of war where they’re testing all their new weapons against each other, and they can hone those.”
In the meantime, JD.com arguably has an even better toe-hold. Last year it built its own logistics network in Indonesia, setting the stage for a huge growth effort. JD CEO Richard Liu said at the beginning of this year that JD.com would be servicing every Southeast Asian country before 2018 came to a close.
There’s no reason not to take his plans at face value.
Bottom Line for Alibaba Stock
As for who will win the war, it remains to be seen. All three outfits may survive in Southeast Asia, as they have in so many other locales. Thriving, however, is a different story.
To that end, while Amazon.com is a hit in the western hemisphere, it’s not recreated the same success in the eastern half of the planet. It only claims 1% of China’s e-commerce market for itself, and even in a more neutral, level-playing-field India Amazon has captured less than a third of that country’s e-commerce business.
It’s unlikely such fortunes will change in another part of Asia.
In the meantime, while JD.com is playing a respectable second fiddle to Alibaba in most markets, that’s a distant second. Alibaba’s deep pockets and influence help keep it ahead of the competition.
In other words, this is good news for owners of Alibaba stock, even if it’s going to take a while to carve out a piece of what some expect to be a $200 billion e-commerce market by 2025.
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.
