Alibaba Group Holding Ltd Scraps Plans To Invest In Snapdeal

Alibaba Group Holding Ltd Scraps Plans To Invest In Snapdeal
By Charliepug (Own work) [<a href="">CC BY-SA 4.0</a>], <a href="">via Wikimedia Commons</a>

Chinese online retailer Alibaba has scrapped plans to invest in Snapdeal due to the exorbitant valuation sought by the Indian online marketplace. Snapdeal was seeking to raise $1 billion in the latest funding round to fuel growth, and the Chinese giant was looking to invest $500-$700 million. But the two firms could not agree on valuations.

Alibaba leaning away from investing in Snapdeal

Sources familiar with the matter told The Economic Times that the Hangzhou-based company was valuing Snapdeal between $4 billion and $5 billion. But the Indian firm had sought a valuation of $6-$7 billion. The investment in the New Delhi-based company would have given Alibaba a stronger footing in the rapidly growing Indian e-commerce market.

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Sources familiar with the talks told Jason Del Rey of Re/code that the Chinese company was “leaning away” from making any investment in the Indian firm. Alibaba has been expanding its presence in India, mainly through acquisitions, as it seeks to serve two billion customers worldwide. Last month, its financial arm Ant Financial picked a 25% stake in mobile commerce platform Paytm for $550 million.

Alibaba has time to consider alternative ways

Snapdeal CEO Kunal Bahl has said that the Indian e-commerce market was 6-7 years behind China. So, Alibaba has some time to consider other ways to explore the market. A U.S.-based investment banker told The Economic Times that private equity and venture firms were “hugely interested” in investing in Indian e-commerce space. But they were taking a cautious approach because valuations have been pumped up to exorbitant levels.

Separately, a lockup on 337 million shares of Alibaba expired today, which may put further pressure on the stock that has declined about 20% year-to-date. The company is investing heavily to curb the sale of fake goods on its platforms, which may hurt Alibaba’s near-term earnings. However, SunTrust analyst Bob Peck said in a research note Wednesday that the Chinese e-commerce giant was a “compelling” buy on current valuations.

Peck said Alibaba faces immediate headwinds, but the long-term outlook remains positive. SunTrust has a $110 price target on the stock.

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