Alibaba's IPO preparations continue with a $1.22B co-investment in China's YouTube
Alibaba continues to prepare for its initial public offering by acquiring large stakes in Chinese Web companies and releasing new services at a fast clip.
The company has partnered with Yunfeng Capital to acquire an 18.5 percent stake in Youku Tuduo, a company often referred to as "China's YouTube." The companies spent $1.22 billion to acquire the stake, and paid a 26.3 premium over the last traded price, according to Reuters.
Alibaba has been making similar investments over the last few months. The company invested $215 million in the Tango messaging startup in March. Less than two weeks later, it announced a $692 million investment in Intime Retail to develop an online-to-offline shopping experience. Then the company announced in April that it had agreed to acquire AutoNavi, the most popular mapping and navigation service in China, in a deal valuing it at roughly $1.15 billion.
The mobile search engine developed in partnership with the UCWeb browser-maker is meant to help Alibaba compete with rival offerings supported by competitors like Tencent and Baidu. That's the logic behind many of these investments and acquisitions -- The Tango deal is meant to improve Alibaba's mobile chat service, the Intime deal is meant to extend the reach of its online storefront, and the AutoNavi acquisition is meant to give it control over the most popular mapping company in China.
Alibaba is preparing for war, and it's using those preparations to bolster its IPO prospects. The company is expected to go public some time this year, and every deal it announces makes its stock even more appealing to investors. That the company is able to kill two birds with one stone (or at least serve two functions with one acquisition) makes it easier to understand why it's spent several billion dollars in the just a few months. It's playing the long and short games.
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The Financial Times explains the thinking behind Alibaba and UCWeb's new search engine:
Alibaba took an undisclosed stake in UCWeb last year, part of a strategy to secure a foothold in the mobile internet where rival Tencent currently has an edge due to its hugely popular Weixin (WeChat) and QQ mobile messaging apps.
Alibaba and UCWeb are gambling that China’s top ranked search engine Baidu, which has more than 60 per cent of the country’s internet search market, may be vulnerable when it comes to the mobile internet, where smaller screens may not favour the traditional search engine that generates pages and pages of loosely targeted results. The Wall Street Journal reports that Alibaba is targeting the largest IPO in history:
Quartz compares Alibaba’s investments to acquisitions made by Facebook and Google:
Alibaba Group Holding Ltd. is working on a plan that could make its initial public offering the largest in history.
The Chinese e-commerce giant and its bankers are discussing adding new shares to the deal, a move that would enable the company to raise funds for itself alongside some of its current investors, according to people familiar with the deal.
Pando weighs in
Facebook has acquired the virtual-reality hardware maker Oculus Rift, staff from solar-powered dronemaker Ascenta, and the mega-popular messaging start-up WhatsApp. Google, for its part, is buying military robots, building driverless cars, and launching high-altitude internet blimps.
The comparison is striking: In China’s relatively young internet sector, major players like Alibaba are buying relatively stodgy old companies. Meanwhile, in the relatively mature US internet sector, major players like Facebook and Google are placing bets on dynamic and fast-developing future technologies.
I wrote about Alibaba’s reported IPO plans when they were first reported:
Chinese e-commerce monolith Alibaba is reportedly planning to hold an initial public offering as early as April. The company is expected to list in New York after encountering regulatory issues in Hong Kong, and has reportedly tapped Simpson Thacher & Bartlett, Credit Suisse, and Morgan Stanley to handle the IPO. It’s said to be seeking at least $15 billion in funding.
The offering is expected to be the biggest since Facebook went public in May 2012. Investors are excited enough that Yahoo, which owns 24 percent of Alibaba, has seen its stock rise on the news. BGC Partners analyst Colin Gillis told Bloomberg that investors have actually been buying Yahoo stock as a way to get some slice of Alibaba. ‘A lot of people are investing in Yahoo as a proxy for Alibaba,’ he said. ‘In fact, I would say the majority of people are.’ I then placed its investment in Tango in context:
While these services have users from around the world, most of these companies have centralized fiefdoms in certain regions. Some, like WhatsApp and Tango, are popular in the United States and Europe. Others, like Viber and Line, are popular in Southeast Asia. This can frustrate consumers with contacts around the world, as they are forced to use a variety of services to perform essentially the same function — if any service manages to remove that hassle, it stands to attract many of the people who care more about their contacts than the services they use.
This investment could allow Alibaba and Tango to create a service (or at least a couple of services) that will do just that. Then I wrote about how Alibaba’s investment in Intime puts it ahead of American e-commerce companies:
American web companies have long been rumored to open their own storefronts. Google has been rumored to be creating a store for its tablets, laptops, and other physical products since the beginning of last year. Amazon was expected to open its own physical stores in Seattle in 2012. Neither company has opened or hinted at opening such stores, but the rumors persist. Now it seems that Alibaba will beat them to the punch, just like it did with same-day delivery.
Alibaba’s deal with Intime doesn’t even come close in scale to the acquisitions companies like Facebook or Google have made in the last few months. But as an investment from an e-commerce company looking to quash its competition, creating a viable “online-to-offline” experience might help Alibaba stay in front of its competition and continue to best its American counterparts. And then I explained how Alibaba's attention can doom companies standing in its shadow after a rash of reports outlined the many ways Weibo's IPO is expected to disappoint:
Weibo isn’t the only company affected by Alibaba’s kiss of death. The company’s performance has been boosting Yahoo’s stock price for the last year, leading some to conclude that Yahoo’s own shares are effectively worthless, and making industry observers fearful of its prospects.
The difference, of course, is that investors are purchasing Yahoo shares to get a piece of Alibaba. In this case, investors are planning to purchase Alibaba’s shares to get a piece of Weibo. The details are different, but the result is the same: more attention for Alibaba and its future and less attention for the companies to which it is connected. As I said: a kiss of death. [image via wikimedia]