Focus On Global Expansion And Yahoo And Didi Deals During Alibaba Q1 Earnings

  • After  a 40% rally in stock price, market is still bullish on BABA stock.
  • Investors should look for updates on the impact of the Yahoo and Didi deals.
  • Global expansion and global brands joining Alibaba’s platforms are still in focus.

The Chinese tech and e-commerce giant Alibaba Group Holding Ltd. (NYSE:BABA) will report its fiscal Q1 2017 earnings report following its latest global expansion attempts and recent developments in two deals that have a direct impact on the company: the Yahoo (NSDQ:YHOO) – Verizon (NYSE:VZ) deal and the Didi Chuxing – Uber China deal. For many, Alibaba is a Chinese e-commerce platform that sells counterfeit products produced locally and cheap commodity-like goods – but the company that has global aspirations is working very hard to change that and improve its reputation around the globe.

Alibaba is working on two fronts to improve its reputation globally: fighting fake goods sales on its different platforms and attracting worldwide brands to open an online store on Alibaba. The first front is very straightforward, and Alibaba’s Jack Ma was very clear on the importance of removing infringed goods from Alibaba’s various platforms. This effort from Mr. Ma, even though sometimes misinterpreted, is one of the tools that Alibaba has to attract global brands to its platforms, which will avoid the Chinese giant if not given full support to protect their intellectual property. Mr. Ma made this point very clear in a recent column in the Wall Street Journal in which he rejected the claims that he supports and benefits from the fake goods sales on Alibaba platforms.

The second front is to attract global brands onto the Alibaba platforms by highlighting three main appealing points: incomparable exposure to Chinese consumers; a rapidly growing, substantially international e-commerce business; and a comprehensive solution that includes e-payments service (AliPay), logistics (Cainiao), cloud services (Aliyun/AliCloud), and several e-commerce platforms addressing domestic and international markets. Alibaba signed several significant partnerships lately—with fitness band maker Fitbit Inc (NYSE:FIT), French insurer AXA, Mars, Mondelez, and more—while slowly expanding AliPay into new countries and AliCloud into Japan and making a bid for Polish auction site Allegro. The Allegro deal could potentially allow Alibaba not only to enter the emerging Polish economy but also to use it as a platform to penetrate the European market.

Beyond the organic internal growth catalyst, Alibaba has been profoundly impacted by the Yahoo-Verizon deal and the Didi-Uber deal. Yahoo still holds a significant number of shares in Alibaba, which will be held, after the deal is closed, under a new holding company that will also hold Yahoo Japan, Yahoo’s patent subsidiary Excalibur, and cash. Yahoo will probably continue in its efforts to sell or spin off its Alibaba Group Holding Ltd. stake in a move that could impact the Chinese company's stock price. Some speculate that Alibaba is waiting for the deal to close and the share price to drop before contacting Yahoo about buying back their Alibaba shares from the former internet and tech leader. Questions like whether this transaction will take place soon, whether it will be tax-free, and what is the acceptable price that Alibaba is willing to pay for the shares could have a significant impact on the Alibaba Group Holding Ltd. stock price.

The deal between Uber and Didi Chuxing improves Alibaba's position to benefit from the rising ride-hailing market in China. The company invested heavily in Didi Chuxing together with the Chinese tech giant Tencent, and recently, Apple Inc. (NSDQ:AAPL) joined the long list of investors in Didi. The combined company will have more than 50 million users in China with an unbelievable growth potential that could create a significant revenue stream for Alibaba. It is still unclear how the transaction will impact Alibaba in the immediate term.

Beyond the endless effort to expand its e-commerce business, investors should keep an eye out for any significant update on AliCould and AliPay. Both of these services attempt to strengthen their global operations and generate more revenue internationally amid the intense competition in both markets.

Alibaba is reaching these earnings on the heels of a 40% rise in stock price and after the company beat market expectations in the last couple of earnings releases. The market is very bullish on e-commerce players like Amazon (NSDQ:AMZN), eBay (NSDQ:EBAY), and, of course, Alibaba. Therefore, I expect a sharp reaction to the results just as we saw on Amazon and eBay. Investors should pay careful attention to any update regarding the implications of the Yahoo or Didi deals as well as on further acceleration in its global expansion. I believe Alibaba will announce that new global brands will open stores on its platforms. However, it will be fascinating to see if the company will have an answer to the JD/Walmart collaboration that was announced in June.

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