Alibaba buys controlling stake of retailer Lazada for $1b

Dive Brief:

Chinese e-commerce giant Alibaba Group said Tuesday that it will pay $1 billion for a controlling stake in Singapore-based e-commerce startup Lazada Group, its biggest foreign investment so far.
Lazada, founded in 2012, operates e-commerce marketplaces in Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam. The investment reflects both Alibaba’s deep pockets and its interest in growing Southeast Asian populations.
Alibaba is buying $500 million of newly issued Lazada shares and is spending another $500 million to buy out shares owned by existing shareholders, including Berlin-based tech incubator Rocket Internet, British supermarket company Tesco, and Swedish investment firm Investment AB Kinnevik, according to the Wall Street Journal. The investment from Alibaba values Lazada at $1.5 billion, according to existing shareholders’ statements, the Journal said.

Dive Insight:

The six countries where Lazada operates have a combined population of some 560 million people, with an internet user base of some 200 million, according to Internet Live Stats. Just 3% of Southeast Asia’s retail sales are online, so Alibaba says it sees huge growth potential there.

Alibaba announced in March that it sold 3 trillion yuan ($463 billion) of goods through its online shops in the past year. While this was a milestone for the retailer, Alibaba said that slowing growth in China has led it to expand outside of the country, including, as it seems now, Southeast Asia. As the Journal notes, this area has seen rising rates of online shopping thanks to increased adoption of smartphones and internet distribution.

“Globalization is a critical strategy for the growth of Alibaba Group today and well into the future,” Alibaba president Michael Evans said in a statement. “With the investment in Lazada, Alibaba gains access to a platform with a large and growing consumer base outside China, a proven management team and a solid foundation for future growth in one of the most promising regions for eCommerce globally.”

Though promising, the area also has its challenges, with poor infrastructure hampering e-commerce logistics and slower internet speeds hampering sales, issues that Alibaba’s investment could go far in correcting, according to analysts cited by the Journal.

“Alibaba will be able to provide strong infrastructure and logistics guidance, which will help bring costs down and shorten delivery time,” Canalys analyst Nicole Peng told the Journal.

Alibaba has put much of its $3.7 billion free cash flow into expanding its e-commerce, logistics, and media in China and beyond, including in India and the United States. The retailer invested $500 million in India-based e-commerce startup Snapdeal last August, and in 2014 bought a minority stake in the main postal company in Singapore for $249 million.