Chinese e-commerce giant Alibaba has widened its vision in delivering the most extensive services among its clients as it tries to close a deal with Intime Retail Group. It seems the market players coincide with the goal of the company as the stock gained 0.91 percent on overnight session and rallied 0.65 percent in the pre-market. How will the deal affect the long-term growth and strategies of Alibaba? Will the stock sustain its upward trend?
Alibaba and Intime
Alibaba has been exploring possibilities outside its comfort zone as it bids for a partnership with Intime Retail Group Co. The Chinese e-commerce company has offered $2.6 billion or HK$19.8 billion to Intime Retail Group, which is primarily involved in multiple operations and management of 29 department stores and 17 shopping malls in the mainland China.
The main goal of the tie-up would be the dominance of the e-commerce company in the brick-and-mortar stores, similar to the strategy practiced by Amazon. Alibaba has been strengthening its presence offline as the competition gets tighter and tighter in the online world through the birth of various e-commerce transactions made possible by social media networks. Also, Alibaba may have the opportunity to innovate its operation both online and offline as it widens its business operations in the entire Chinese market.
In the reports circulated around the media, Alibaba Investment LTD and Shen Guo are eyeing for HK$10 per Intime share. Currently, Alibaba owns more than 28 percent of Intime while Shen holds about 9 percent of Intime. Both groups plan to finance the transaction through external debt financing and internal cash resources.
These long term strategies of both companies are seen as headwinds in Intime’s short-term growth. However, Alibaba clarified that it is only after the innovative ways in this contemporary time.
Alibaba Group Chief Executive Officer Daniel Zhang said, “We don't divide the world into real or virtual economies, only the old and the new. Those who cling on to the old ways of retailing will be disrupted. Our combination with Intime will enable us to tap into the long-term growth potential of a new form of retail in China powered by Internet technology and data.”
Mr. Zhang also lauded the company’s growth efforts in retail stores. “China’s total retail sector is a US$4.5 trillion economy and is growing at 10.7% a year. Alibaba is working with offline retailers to transform conventional approach, create new consumer shopping experience and use actions to embrace future opportunities under the new retail model.”
Apparently, the Chinese e-commerce firm preps for more experiments in retail stores while acknowledging the change of taste by the customers in terms of shopping. Alibaba is looking forward to the actualization of its business deals this 2017, and retail chains are part of the list. During the last earnings report of Alibaba, it reported an increase of 78 percent of its innovation initiatives, amounting to $104 million. The growth of its cloud computing, digital media and entertainment and innovation initiatives sectors is expected to drive long term value for its customers and shareholders.
Alibaba stock has been on the upside since 2017 kicked-off. After plunging at 86.00 levels at the end of 2016, it managed to regain the confidence of the market participants as it climbed at 93.00 levels. The upward momentum was strengthened when the stock closed at 94.00 levels during the overnight session on Monday.
During the previous session, Alibaba traded at $94.72 with a session high of 95.65 and a session low of 93.31. The company had a market capitalization of 233.14 billion and a price earnings ratio of 50.72. Alibaba was away from its 20-day SMA of 94.14 and 50-day SMA of 90.84, establishing a bullish call for the stock.
As seen in the image above, the stock was close to the upper barrier of the band (1) , thus, there’s a reasonable chance that the upward trend will be sustained in the coming session. The volatility brought by the expansion (2) will not trigger a reverse path for the stock. On the other hand, in a typical trend, after a high volatility comes a low volatility which may lead into contraction. In a wider perspective, Alibaba Stock was only steady in the last three months of 2016 considering the major fall in October.
Earlier today, it was confirmed that Alibaba has opened the door for a million of U.S. jobs, proving its stability in the foreign country under the administration of President-elect Donald Trump. In the twitter post of the company it was written that “$BABA wants to create US jobs by helping US small businesses and farmers sell to China's 300 million-strong middle class.” Mr. Trump even called Alibaba’s head Jack Ma as a “a great, great entrepreneur, one of the best in the world.” As long as the e-commerce company excites the investors on its partnerships and bets, the stock will likely remain on hold of its gains.
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