Chinese e-commerce juggernaut Alibaba is investing 28.3 billion yuan or $4.63 billion for about 20% stake in consumer electronics retailer Suning Commerce Group. This investment will make Alibaba the second biggest shareholder in Suning. Meanwhile, the electronics retailer will buy up to 27.8 million shares or 1.1% stake in Alibaba in a private placement at $81.51 per share. It means the total value of the deal would be close to $7 billion.
The deal aimed at O2O e-commerce opportunities
Alibaba said in a statement that the deal was aimed at expanding its online retail offerings and connecting Internet users with brick-and-mortar offerings. It shows the Hangzhou-based company’s seriousness about the online-to-offline e-commerce opportunities. China’s booming e-commerce and mobile shopping have encouraged a number of tie-ups between traditional retailers and Internet companies to leverage each other’s strengths.
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Customers can buy goods online and pick their orders up at brick-and-mortar stores to avoid waiting for delivery. They can pay electronically using Mobile Taobao or Alipay in physical retail stores, book transportation, order movie tickets, among over local services.
Suning to extend reach of Alibaba
Under the terms of the deal, Suning will set up a flagship store on Tmall to sell home appliances, consumer electronics, and baby products. Suning will also become Alibaba’s partner in its logistics service Cainiao to extend the reach of Alibaba in rural areas. The electronics retailer has over 1,600 stores in 289 cities. Its partnership with Cainiao will improve the delivery of electronics and home appliances to smaller cities and rural areas.
Alibaba is set to report its fiscal first-quarter results on Wednesday, August 12 before the market opens. Analysts expect the company’s revenues to jump 32% YoY to $3.38 billion. However, its net profit is expected to sink 58% to $842 million from the same quarter last year. The share-based compensation to employees and Alibaba’s heavy investments in mobile Internet businesses would hurt its Q1 profits. Investors will also be looking for details about the company’s spending on O2O services.
Alibaba shares rallied 1.55% to $80 in pre-market trading Monday.