Chinese billionaire Jack Ma-led Alibaba has been spending heavily on acquisitions and minority investments in start-ups around the world. But the company provides little details to its shareholders. Some may argue that Alibaba is a large company and most of its investments are too small to disclose. In 2014, the online retailer spent a large chunk of its operating cash flow on acquisitions.
No obvious common thread in Alibaba’s investments
At this year's Sohn Investment Conference, Dan Sundheim, the founder and CIO of D1 Capital Partners, spoke with John Collison, the co-founder of Stripe. Q1 2021 hedge fund letters, conferences and more D1 manages $20 billion. Of this, $10 billion is invested in fast-growing private businesses such as Stripe. Stripe is currently valued at around Read More
Of course, Alibaba’s core e-commerce business remains robust. But returns on its new ventures are uncertain, says Reuters Breakingviews columnist Robyn Mak. A few days ago, the company’s $200 million investment in Snapchat was widely publicized. But Alibaba did not acknowledge that its investment for just 1.5% valued the U.S. messaging service at $15 billion. Despite its lofty valuation, Snapchat generates little revenue.
The Hangzhou-based company’s latest investment was in the Israeli venture firm Jerusalem Venture Partners (JVP). This deal has also been confidential. Jack Ma claims that he is building an “ecosystem of services.” But there is no obvious common thread among Alibaba’s investments. In January, the company led a $600 million investing round for the Chinese taxi-hailing app Kuaidi Dache.
Last month, it acquired a minority stake in smartphone maker Meizu for $590 million. Alibaba has also teamed up with China’s SAIC Motor to invest $160 million to launch Internet-connected cars next year. Last month, it led a $60 million funding in the mobile search firm Quixey. Many of its investments are channeled through affiliate companies or executives’ personal vehicles.
Alibaba’s stake in Youku Tudou is worth less than half the amount it paid
Last year, Alibaba spent $7.5 billion on acquisitions and minority investments. That’s about 75% of its operating cash flow for 2014. At this point, it’s difficult to say how its new venture are faring. Alibaba’s share of its associates’ losses jumped from $50 million in Q3 to $130 million in Q4 last year. The company doesn’t book its share of losses of start-ups because its holdings in those ventures are in the form options or convertible shares.
But its investments in listed firms haven’t performed well. Alibaba paid $1.1 billion for a 16.5% stake in the video site Youku Tudou last year. That stake is now worth less than half the original investment, says Mak. Given Alibaba’s size, it can afford to take some risks. But the lack of information may prompt fears that the Chinese company is blowing its finances.