Alibaba Group Holding Ltd (NYSE:BABA)’s two new latest investments in Snapchat and Snapdeal seem to be worthy stakes for solid business returns however the company is unlikely to make any key strategic benefits from them. Market analysts were initially a bit puzzled when they first read about the ecommerce giant Alibaba Group investing in two companies with similar names. But, after a close analysis it was clear that these were two muchdissimilar deals. The first was the popular U.S. social networking service (SNS) Snapchat, while the second Snapdeal, which is also a popular Indian e-commerce site.
Regardless of their huge topographical and product variances, these two deals appear to signify an increasing trend for Alibaba, which is not anymore acquiring companies, but buying minor calculated stakes instead. The strategy looks typically beneficial to the investment goals. This is because it’s serving to push the assessments of names like Snapchat and Snapdeal to light levels, just like the Chinese ecommerce company did with similar investments to inflate its private valuation in the run-up to its IPO in the previous year.
Analysts in this case have doubted if Alibaba would really be able to grow much from such investments regarding the strategic deals. The company might have to be satisfied with naive monetary profits as these companies’ assessments increase, say the analysts. This is not a perfect idea for a company like BABA that would wish to acquire some strategic incomes as well as monetary gains. Nevertheless in this case, the ecommerce company truly has too much futile cash that it has to be put to work. Therefore, at any rate such investments will produce some financial earnings.
Not any of those deals will offer Alibaba a much great stake in either Snapchat or Snapdeal. They are more concerned in running across huge investor groups that can provide them with money to increase growth without yielding any organizational control. According to the reports, the Snapchat deal is almost an investment of $200 million in the company while Snapchat is reported to be about $15 billion.
Analyst RJ Hottovy from Morningstar has discussed about the Alibaba Group Holding’s investment in Snapchat in detail. Hottovy has said that what had pushed the choice of acquiring Snapchat’s platform was BABA’s obligation to its private mobile platform and the opportunity to learn from Snapchat. He didn’t think that the deal indicated a forceful growth in the U.S. for Alibaba. Alibaba might be concerned about learning diverse technologies that could help them boost up their private mobile platform, Hottovy added. He added that the ecommerce company has turned out to be a serial acquirer taking risks in minor industries. This is allowing the company to have positions in many developing technologies. If it improves Alibaba’s ecosystem, then it will certainly be a worthy investment for the company as it is only a small investment, Hottovy concluded. Alibaba declined with 0.09% closing at $81.92.