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The Zacks Analyst Blog Highlights: Alibaba, Ctrip, Weibo, Sina and Baidu

For Immediate Release

Chicago, IL – April 11, 2016 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Alibaba (BABA), Ctrip (CTRP), Weibo (WB), Sina Corp (SINA) and Baidu ( BIDU).

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Here are highlights from Friday’s Analyst Blog:

Chinese Secret Sauce for Alibaba

There were a number of significant developments at Alibaba (BABA) this past week that got me thinking about its long-term strategy. If I’m right, Alibaba has differentiation built into its retail business, which is a big deal.

The secret sauce appears to be the company’s knowledge of Chinese consumers who are unique in their habits. While government intervention is no doubt a factor, limited knowledge about Chinese behavior has also made it difficult for foreign companies to succeed in China. It is this knowledge that Alibaba is building and leveraging to become a China brand ambassador of sorts:

Retail Platform for the Chinese

Alibaba reported a new gross merchandise volume (GMV) milestone this week. The company said it had tripled GMV to 3 trillion yuan over the past three years, a seemingly impossible feat considering its already colossal size, the steadily increasing competition and the slowing growth of the Chinese economy.

While ecommerce companies are generally intent on expanding internationally, Alibaba’s focus has been different. The company’s alliances with retailers across the world are intended to bring goods to Chinese consumers. In fact the growing Chinese middle and affluent class are the perfect consumers of these goods.

The recent milestone was also achieved by increasing penetration in China, particularly the rural segment that remains underserved today. Only 12K of the 600K Chinese villages have been connected by Alibaba with the company announcing that it would invest $4.6 billion in Chinese electronics company Suning Commerce Group to help further expansion.

The significant growth prospects likely drove the company to set another ambitious target for future growth: the new goal is 6 trillion yuan by 2020, implying an 18.9% CAGR over the next four years.

Payment Platform for the Chinese

On the Payments front, Alibaba’s finance arm Ant Financial figures it can capitalize on the significant increase in Chinese overseas spending. The World Travel & Tourism Council reports that spending by Chinese tourists in overseas locations jumped 53% in 2015 to $215 billion.

So this week Alibaba announced that Chinese Alipay users will be able to use the Alipay app in Europe. The app will not just enable seamless payments without sharing credit card information, but also send notifications to the user about eateries, shopping centers and sigh-seeing options.

The initial European markets will be U.K., Germany, France and Italy but Alibaba is working to get more sellers on to the platform. It’s offering its knowledge of and access to Chinese customers as a lure. The long-term goal (5-10 years) is to get 2 billion customers on to the platform both in China and internationally.

Medical Platform for the Chinese

Healthcare is one of the fastest-growing sectors in China, with spending expected to jump from $350 billion to a trillion dollars by 2020. The aging population and government healthcare reforms are the primary drivers. So Alibaba along with Internet companies like Tencent are trying to get in on the game.

Alibaba did initially make some headway, developing a drug tracking platform for the government that hospitals (the largest sellers) and medical retailers were required to use. The platform was supposed to help the government track the authenticity, expiry and other details of medicines. For Alibaba, it was access to vital information on drug sales that could enable it to take on the hospitals and other retailers.

What followed was significant protests with rival drugstore chain Yontinhe Group suing the Chinese FDA (CFDA). The Chinese regulatory body initially refused to budge, but in Feb this year, softened its stance to put Alibaba’s platform on hold.

Last week, Alibaba also scrapped plans to merge its pharmacy business with Ali Health. However, other opportunities exist, as Ali Health has entered into an agreement with Tmall, under which it will distribute medicines offered on the Tmall platform for a 21.5% service fee.

News Outlet for the Chinese

This week, Alibaba announced that the South China Morning Post that it acquired last December would be offered free of cost in an attempt to acquire as many readers as possible.

Tammy Tam, editor in chief of SCMP explained its new strategy/direction: “A global community of China stakeholders will demand insightful and trusted news and commentaries from a within-the-region perspective”. So here again the goal is to reach Chinese people.

The decision to distribute the paper free makes it all the more attractive to non-Chinese readers as well. Alibaba shouldn’t have a problem monetizing the publication that generated $159.9 million in 2014 because it would include valuable advertising space to promote its retail and other businesses.

Travel Booking Platform for the Chinese

Alibaba’s Taobao Travel was launched in 2010 and rebranded as Alitrip in 2014. The platform has more than 10K vendors of hotel, air and package tours. There is also a mobile app.

It invested in Qyer.com, which focuses on outbound travel from China in direct competition with Ctrip ( CTRP). Alibaba also invested $294 million in mapping company Autonavi for a 28% stake. Autonavi reportedly has a 45% share in China. Alibaba also has a stake in travel experience sharing site 117go.com.

Of course, that was not the end of that. Right after its $25 billion IPO, Alibaba acquired a 15% stake in Chinese hotel technology company, Beijing Shiji Information Technology, for $457 million. Beijing Shiji says it works with more than 400 hotels and is the preferred vendor in China for Grand Hyatt, Sheraton, Hilton, Shangri-la, Marriott, Peninsula and Accor.

Dating/Chatting/Gaming for the Chinese

Last week, Alibaba reportedly agreed to join a consortium to buy out Chinese dating site Momo. The buyout was proposed last year but Alibaba’s role in it seemed doubtful. The appointment of Alibaba’s co-founder Joseph Tsai to Momo’s board this February may have sweetened things sufficiently for the Chinese ecommerce giant.

Back in 2013, Alibaba acquired an 18% stake in short messaging platform Weibo (WB). Last week, it was rumored that Alibaba may be looking to increase its stake in the company that was spun out of Sina Corp ( SINA) in 2014. Weibo is seeing increased competition from Tencent’s WeChat, but the company managed to beat expectations in the last quarter.

To Sum Up

Alibaba has an awesome retail platform focused on Chinese customers and it is using its knowledge of these Chinese customers to branch into various other Internet businesses. This is a solid strategy for the long term, as the company looks to create and support a Chinese community across the world. Of course it has competition in the form of Baidu (BIDU), Tencent, among others, but Alibaba has been gone from strength to strength on the back of a Chinese economy that continues to grow faster than most others.

That said, Alibaba has a Zacks Rank #3 (Hold), so it’s probably a good idea to wait for a better entry point.

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