Chinese online retail giant Alibaba Group Holding Ltd BABA is looking to expand its foothold into the media and entertainment industry.
Alibaba Digital Media and Entertainment Group, the entertainment affiliate of Alibaba, plans to put in more than 50 billion yuan ($7.2 billion) to develop content over the next three years.
Meanwhile, the company has ramped up its investments in the entertainment space by forming a separate group – Alibaba Digital Media and Entertainment in October last year. This division covers video website Youku Tudou, mobile Internet company UCWeb, Alibaba Pictures Group, Ali Music Group along with the multiple gaming, literature and other digital assets.
In the last reported second-quarter fiscal 2017 (ended Sep 30, 2016), revenues in the Digital Media and Entertainment group were RMB3.61 billion (US$541 million), up 302% year over year. The increase came from the consolidation of Youku Tudou and from an increase in revenues from mobile value-added services provided by UCWeb, such as mobile search, news feeds and game publishing.
On a year-to-date basis, shares of Alibaba generated a return of 7.51% compared with the Zacks Electronic Commerec industry’s gain of 7.54%.
The Chinese e-commerce giant intends to foray beyond e-commerce and cloud computing to media. The company also plans to move beyond film assets and the domestic Chinese media.
Last November, Alibaba acquired video service Youku Tudou Inc. to stream more content for Chinese users. The company also invested in Paramount Pictures’ latest Mission Impossible release through its Alibaba Pictures Group unit.
Other tech companies, namely, Netflix NFLX and Amazon AMZN have been making efforts to expand in China. However, stringent Chinese regulations, including the regional licensing blocks that prevent the release of content in other countries, have been a major hurdle.
Meanwhile, one should note that Alibaba enjoys several advantages in China such as a solid relationship with the government that helps the company attain the necessary licenses as well as the company’s extensive online market presence. Despite the strengths, the fight for a share in the Chinese streaming market should be quite an interesting one.
Currently, Alibaba has a Zacks Rank #3 (Hold). Another stock in the industry worth considering includes Stamps.com Inc. STMP carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Stamps.com delivered a positive earnings surprise of 66.72% in the trailing four quarters.
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