Alibaba will buy Tencent’s biggest rival

Alibaba is on a shopping spree. The Chinese tech conglomerate will buy online shopping platform Kaola from NetEase, known mostly as Tencent’s biggest rival. The $2 billion deal is a steal for Alibaba and a loss for NetEase. Nasdaq-listed NetEase, best known for computer games, probably wants fresh funds to invest in its core businesses. Yet sales from its ecommerce business contributed almost 30 per cent of revenues in 2018. Margins have improved on supply chain upgrades, cost cutting and higher volumes. More importantly, the unit provides stability for the company’s top line. This is subject to whimsical Chinese gaming industry regulations and frequent game title approval delays. The gaming giant has done well to at least hold on to its second ecommerce platform, Yanxuan, selling China-sourced goods. Sales growth here has outpaced that of Kaola. Unfortunately, most of the merchandise consists of “private label products”… Kaola gives Alibaba access to a new wealthy target group… After the sale, Alibaba will have well over half of China’s fast-growing cross-border ecommerce market, having absorbed its biggest competitor. NetEase will be left to face already slowing revenue growth without one of its key drivers.