Why Alibaba’s Potential Acquisition of SCMP Will Not Impact Its Valuation?

There have been reports of Alibaba (NYSE:BABA) in talks to buy controlling stake in Hong Kong based South China Morning Post (SCMP). ^[1] While none of the parties have confirmed this deal, we believe it will not have any significant impact on Alibaba’s valuation. SCMP’s revenues for FY2014 were $161 million and its net income stood at $21 million. ^[2] These numbers are not significant when compared to our estimate of Alibaba’s revenues  for FY 2015 which stands at $15.1 billion and the net income figure of $7.3 billion. Alibaba’s potential inflow from SCMP will not be significant enough to make any impact on its valuation.

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However, this deal might work out well for Alibaba’s overall growth strategy. The company’s founder Jack Ma in an interview with Bloomberg TV had stated that Alibaba needs media to help promote its small and medium enterprises. ^[3] Also, SCMP is considered to be an influential newspaper and online publication in Asia Pacific. An ability to compete online is essential for all traditional media companies to stay in the game, in the current era.  A partner from the internet and technology space would be relevant for its online strategy, hence the deal can benefit SCMP. For Alibaba reasons for entering into the online media space could be similar to why Amazon’s CEO Jeff Bezos bought The Washington Post., trying to reinvent the traditional media business and integrate it using his expertise in Amazon’s digital capabilities. ^[4] The paper is now leveraging its technical expertise to build a popular digital version of the Washington Post, which introduced a free app for Kindles, the e-reader built by Amazon, to bring daily editions of the newspaper to Kindle Fire owners.

While acquisition of SCMP might not have any impact on Alibaba’s valuation, if it eventually acquires the former , it could be a strategic move to explore synergies between media and internet business and create a digital version of the popular newspaper which can be used for advertising and integrated with other offerings of Alibaba.

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1. Alibaba In Talks to Buy Controlling Stake In Hong Kong’s SCPMP Group, The Wall Street Journal, Nov 24, 2015 [↩]
2. SCMP Group Annual Report, Morningstar [↩]
3. Jack Ma Interested In SCMP, Other Media Firms, ejinsight.com, November 12, 2015 [↩]
4. Amazon’s Jeff Bezos Explains Why He Bought The Washington Post, bits.blogs.nytimes.com, December 2, 2014 [↩]