Big Spender Alibaba May Need a Reality Check
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E-commerce behemoth Alibaba is buying firms left and right. But is it all too much? Its IPO is just around the bend . . . Breakingviews’ Peter Thal Larsen assesses Alibaba’s recent buying binge with Reuters‘ Tara Joseph.
Too Much, Too Soon
Tara Joseph says: “When you think of Alibaba, Peter, you think of a massive e-commerce firm in China, but like other big Internet players, it’s moving into other areas. Movie production, it bought a mapping firm, and it’s thinking about a shopping mall. Maybe too much too quickly.”
Peter Thal Larsen says: “Well, I think that’s what – really our point about this is that there’s been this big shopping spree, $ 3.8 billion spent since the beginning of 2013. But, what we think is they really need to come up with a better explanation for what makes all these acquisitions and these investments hang together. It was really a lot of activity in a lot of different areas, but a lot of vague talk about sort of e-commerce ecosystems and things like that. And really I think investors will, at some point, begin to ask what is the strategy that holds all these acquisitions together? And what should we expect in the future from Alibaba on this front.”
What Type of Engine is Under Alibaba’s Hood?
Tara Joseph says: “It really is a little odd to be doing this just before a massive IPO, just capitalizing on the brand and on China. Surely, investors will take a look at what is underneath the hood of this company.”
Peter Thal Larsen says: “Well, and I think that is fair to say that Alibaba is still a private company, so they don’t really have to explain themselves to anybody in public. And, you know, they are not the only ones doing this. Facebook has spent north of $20 billion this year on a messaging app and a virtual reality headset company. So, by some measures, Alibaba’s investment might seem quite prudent. But I think the big difference here really is that Alibaba is spending cash rather than shares.”
Lucy Alibaba, You’ve Got Some ‘Splainin’ to Do
Peter Thal Larsen says: ”And, you know, so there is real money going into these acquisitions. It really is not entirely clear how, for example, taking a stake in a shopping mall company actually helps their e-commerce business in the long run, or how taking a stake in a movie producer in Hong Kong will help them with digital content. And that I think, as they build up towards this IPO and as people get excited about investing, potentially, in Alibaba, that is the kind of question that people will be asking of them and that’s something that they are going to have to explain to people in more detail than they’ve done so far.”
Tara Joseph says: “Alibaba’s big shopping spree ahead of its IPO, is this good news? All this cash spending for the company.”
Who knows what Alibaba has up its sleeve, but one thing we do know is that investors will be expecting some answers when it’s all said and done.