Alibaba Reports First Major Investment Since IPO

Alibaba (NYSE:BABA) will pay $457 million for a stake in Beijing Siji Information Technology making this the first major investment since the e-commerce’s record IPO.   Alibaba’s Taobao software unit agreed to purchase 54.55 million shares of the company for 51.52 yuan per share.

The notification came when the news appeared on the Shenzhen stock exchange which disclosed Alibaba’s investment in a regulatory filing.

The e-commerce giant will hold a 15% stake in the hospitality technology provider.  The company offers IT consulting to hotels and sells software that manages room reservations, purchasing and inventory and point of sales systems.

The new investment will allow Alibaba to help grow its Taobao travel business.  Alibaba, whose Taobao and Tmall online marketplaces attract millions of shoppers a day also runs a travel-booking service called Taobao travel, which allows users to book plane tickets, hotels and package tours.  This investment will allow Alibaba to meld a brick and mortar business to its online marketplaces, in hopes of generating more revenue.

Siji distributes its products to high-end hotels in China with clients including Grant Hyatt hotels, Marriot International (NASDAQ:MAR), Westin Hotels and Resorts and Sofitel Luxury Hotels.   The firm says almost 6,000 hotels in China use its products, including 90 percent of the country’s five-star hotels, according to Sunday’s filing.

Significant Investment

This may be just the first major investment since Alibaba’s $25 billion IPO, but it seems to hold a significant underlying mission.  The company that Alibaba invested in nowhere mentions or indicates on their website that they operate outside of China. 

As a concerned concept of global growth, investors are seeking out how Alibaba will grow its business outside of China.  This new investment only adds another constraint in the context of expanding global business.  As I stated before, this complimentary investment is part of growing Taobao’s travel business.  Do not get me wrong, this investment is good for Alibaba growing its’ Taobao travel division, but investors should just be keen on future choices of acquisitions.

Although this investment is only a fraction of the capital that was raised in their $25 billion IPO, this can become a more significant story if Alibaba’s future investments are of similar stature.   Investors should be on the lookout to see if future investments tell similar stories and see how they promote (or don’t promote) global growth.
 
Analysis

We currently rank Alibaba as a Zacks Rank #3 (hold). Next quarter, analysts estimate EPS to be valued at 42 cents per share and $2.05 per share for the current year.  Investors should keep an eye out for their next earnings statement as well as future investments with their $25 billion in raised capital.

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