This is a big week for Alibaba (BABA). It reports its latest earnings on Wednesday morning.
For a company that has a bigger market cap than Disney (DIS), you would think it would be talked about more. But this is a company that definitely has lost the general business media's attention after a very public and successful IPO last fall.
Today, Alibaba made a splashy announcement. It's investing nearly $5 billion into buying a stake of Chinese electronics retailer Suning. Alibaba will end up owning about 20% of the retailer. At the same time, Suning is taking a 1.1% stake in Alibaba through a share purchase.
Suning is a major player in the Chinese retailing scene. This deal signals Alibaba's aim to continue to help stay a dominant player in the commerce world there.
What's helped Alibaba grow to such a high valuation so quickly has been its sole focus on being a purely online player with no offline logistics and real estate pulling down its margins. It's been much more purely online than Amazon (AMZN), which is why it grew to have a bigger market cap than Amazon shortly after its IPO.
In the last couple of years, Alibaba has faced increased competition from Tencent's WeChat messaging service. Although WeChat is not a commerce app per se (it's a communications messenger), it has grown to be so popular a way to connect that its users have been taught new ways of conducting commerce online within the WeChat app. In this way, it's been threatening to Alibaba.
At the same time, WeChat has helped spark a big trend in China called O2O or Online to Offline. It's basically the idea that my life can be made easier if I discover something I need in an online environment, but I can get it closer to me in my offline world.
If Suning has blanketed China with easy-to-get-to retail outlets, then it will be easier for me to order something online and pick it up there.
We have this same phenomenon here of course, but it's been driven by the old retailers wanting to make themselves more relevant in an online world. We haven't really yet seen an online and offline partnership like this over here as yet.
It's being well received today by the market. Alibaba's stock is up 1%. But If it's going to stay up, it needs to log a good quarter on Wednesday.