Can A Partnership With Alibaba Be A Game Changer For Samsung?

SSNLF: Samsung Electronics logo
SSNLF
Samsung Electronics

Media reports suggest that Samsung Electronics (PINK:SSNLF) and Alibaba are planning to enter into collaboration on mobile payments, under which Samsung will allow its smartphone users to use Alipay, Alibaba’s mobile payment service to make payments.  Samsung launched its mobile payment service called “Samsung Pay” earlier this year in China , shortly after Apple Pay was launched in the region. However, the Chinese mobile payments market is dominated by Alipay, which has more than 350 million registered users in China and a 70% market share. Given Alibaba’s strong position in the country, we believe neither Samsung nor Apple can prove to be strong competitors for the company. (Read Are Apple And Samsung A Real Threat To Alipay?) On the contrary, a strategic tie-up with Alibaba could revive Samsung’s smartphone business in the region and could prove to be a strong revenue driver for the company.

Alipay Can Revive Samsung’s Smartphone Business In China

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Since its launch in August last year, Samsung Pay has accumulated transactions totalling  $850 million in South Korea, where it was the top mobile payment app last month. Subsequently, the app was launched in the U.S. and China.  However, penetrating the Chinese market, dominated as it is by Alibaba, is proving to be tough for the company. While details of Samsung’s potential alliance with Alibaba are not yet available, allowing its smartphone users to use Alipay for mobile payments can boost Samsung’s mobile phone sales in the region. Samsung is struggling in the smartphone market and continuing its losing streak in the Chinese market. Alipay’s ubiquity in China can be a driver for Samsung’s smartphone sales. Apart from mobile shopping, Alipay is used by consumers not only in nearly 40,000 Chinese supermarkets and convenience store outlets, but for taxi services, as well. Street food vendors in China and the wet markets have also tied up with Alipay, making it even more ubiquitous.

As per our estimates, the mobile phone division accounts for nearly 30% of Samsung’s valuation and we expect the company’s global mobile phone sales to increase from 1.96 billion in 2016 to nearly 2.2 billion by the end of our forecast period.

 While emerging markets are a key driver for these sales, Samsung China strategy will play an important role in its mobile phone revenues.

While Apple and Samsung both launched their mobile payments services in China, competing with Alipay could prove difficult for both foreign players, given Alibaba’s dominant position in the country. However, Samsung strategic move to tie up with Alibaba can work extremely well in its favour and give the former a strong holding in China, where succeeding independently can be difficult. The partnership with Alibaba could prove to be a game changer for the company.

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