Alibaba (BABA, Financial) is already the world’s largest ecommerce company, and the company has been growing at a robust pace. In the past, I have written on Alibaba with a bullish view on the company and I maintain my bullish stance on the stock.
Today, it was reported that Alibaba and its unit Alipay are in advanced talks to buy a stake for about $550 million in India's One97 Communications, which owns an online payment platform.
One97 runs Paytm, an ecommerce platform that consumers can access through mobile apps. According to the report, the deal is likely to be closed by the end of the month. It is likely that Alibaba will mopup 30% to 40% stake in the company by investing $550 million.
I believe that the potential acquisition is a big positive step towards maintaining global leadership and robust growth. India, with a population of 1.2 billion, has very favorable demographics, and the Indian economy is also improving with the new government being investment friendly.
The investment is therefore coming at the right time in a country that has the third-largest number of internet users. Indian ecommerce market is still at an early stage, and this is another big advantage for Alibaba. The market is far from being saturated, and it gives Alibaba the scope to make big investments in the country in the coming years.
Amazon (AMZN, Financial) has been active in India, and the company clocked $1 billion in gross sales in the first year of the company’s operations in the country. The sales upside is an indication of the immense growth potential that the country holds when it comes to ecommerce.
Further, Amazon will be investing another $2 billion in the Indian ecommerce market, and this underscores the point that the company has identified the potential returns that a big investment can give at a time when the ecommerce market is just picking up.
Once this acquisition is confirmed, I expect Alibaba to go aggressive in investing in the Indian ecommerce markets. For the next 1-2 years, India might not be a big revenue contributor as compared to the company’s overall revenue. However, I believe that over the next 5 years, India can be among the big growth drivers for Alibaba. Therefore, the company is certainly headed in the right direction through this potential acquisition.
From an investing perspective, Alibaba is currently trading at $103 and I believe that the stock is attractive at current levels if investors are looking at a time horizon of 3-5 years. Besides the recent news and potential with the Indian markets, the Chinese ecommerce market will also remain robust in the coming years, and the company’s sales trajectory will remain strong. Alibaba also has high financial flexibility that will allow the company to make further opportunistic acquisitions in high-growth markets.
Therefore, my view is to stay invested in the stock and consider Alibaba as a part of the long-term portfolio. Any further correction in the stock can be used as an opportunity to consider long-term exposure to this potential value creator.
