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August 13th, 2005, 05:21 AM #1$1 Billion for an E-Commerce Website!Alibaba and Yahoo Set to Shake Things Up
By Tim Gray
A first mover in China's Internet market, but never the top tier player, Yahoo (Quote, Chart) pushed $1 billion into the game this week to buy a big chunk of Alibaba, China's largest e-commerce site.
But was the hefty price, which included adjusting existing assets in China to acquire a 40 percent stake in Alibaba, a savvy move, or possible miscalculation that may end up draining company resources in the region?
Alibaba, dubbed the 'Chinese eBay', last year earned a mere $46 million in the world's second-biggest online market. That fact alone has some analysts questioning the costliness of the move, but most seem to believe it means big things for both companies.
"No question this creates a monster in the China Internet," Bill Bishop, CEO of Red Mushroom and co-founder CBS MarketWatch, said in his blog. "It will have a powerful combination of search, communications, commerce and auctions."
Alibaba operates three sites: Alibaba International, a worldwide English-language business-to-business play; Alibaba China, the local online marketplace for business-to-business dealing; and TaoBao, a free eBay-like consumer e-commerce marketplace.
"All they need is a game component and they could have a shot at becoming number one," said Bishop.
Yahoo launched a Chinese-language version in September 1999 but for the most part failed to capitalize on its brand name. In January 2004, it partnered with the Chinese portal Sina.com to create an online auction marketplace aimed at small- and medium-sized businesses and buyers and sellers in mainland China.
Although the previous forays into China didn't yield as much fruit as Yahoo initially believed they would, many analysts say the Alibaba move is spot on.
And that could spell trouble for eBay(Quote, Chart). Alibaba's Taobao consumer auction site was already more than competitive against eBay before this move.
"This deal is potentially disastrous for eBay in China," said Bishop. "Taobao was eating its lunch on a small budget; now they have the backing of Yahoo to ramp up their efforts several notches."
This week Standard & Poor's Equity Research reiterated a "hold" rating on eBay, saying the deal between Yahoo and Alibaba is a negative for the online auction company.
Global Sources Chairman and CEO Merle Hinrichs, whose company competes with Alibaba, and has a strategic agreement with eBay, disagrees with the doom and gloom assessments being tossed eBay's way.
"Well, we're probably as puzzled as many about the pricing of this transaction," he said a statement. "Yahoo... doesn't really change the competitive landscape for us."
August 13th, 2005, 05:28 AM #2
I take it, they are gonna get ahead of eBay in China (or, at least, try to) just as they did in Japan (partnering with Softbank)...
August 13th, 2005, 09:24 AM #3
Looking at other reports, I see that they had $68 million in revenues last year and are seeing about a 50% annual growth rate.
Paying $1 billion for a 40% stake in the company that gets $68 million in revenues seems ridiculously high. That's 37 times annual REVENUES. I can't find earnings numbers, but even if they earn a 20% profit, that's 735 times annual earnings.
I just can't see how this could possibly be a good deal for Yahoo.
August 13th, 2005, 10:13 AM #4
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I think Yahoo either knows something about China that the rest of us do not, or they are doing some serious speculation as to how things are going to shake out in China over the next decade or so. That's a lot of money to be speculating with, with such a relatively small track record of return.
August 13th, 2005, 11:07 AM #5Originally Posted by MichaelColey
August 13th, 2005, 05:18 PM #6
I would guess that they think most of the actual money potential is untapped--and that they'll be able to stride in, take the reigns, and turn it into a real mega money machine.
I would also guess that they'll make some missteps along the way, like assuming the Chinese consumers will love the same things the US does, or going about things in such a way that the 60% shareholders start to resist.
Like EuroDisney, it may take a while before they see the good out of that investment, provided there's actually that much good to be had out of it at all.There is no knowledge that is not power. ~Hemingway
August 13th, 2005, 06:17 PM #7
As far as I know, AliBaba is NOT an eBay-style auction site. It's a business-to-business marketplace, where eBay is mostly person-to-person. B2B did not deliver what some thought it would, in the United States, but it may very well work in China. Think of all the "shituff" that's made in China!
By the way, eBay paid $1,5 Billion for PayPal which, I think, is a much better investment.
August 13th, 2005, 07:00 PM #8
Population isn't everything. I think disposable income is a much better metric.
Let's look at it based on potential...
10% of the people in China account for half of their disposable income. That 10% has an average disposable income of about $1,000 per year. So, those 100 million people have a total disposable income of about $100 billion per year and everyone in China put together has a disposable income of about $200 billion per year. That's about the same as the disposable income of the people in the state of Ohio.
Does Yahoo really think they would be able to get a big enough piece of that pie to be worth a $1 billion investment? They're nuts.
August 13th, 2005, 10:56 PM #9
Dumb Yahoo! Why did not they consult "us" before making such a big investment? What were they thinking?
August 14th, 2005, 03:43 AM #10Originally Posted by Sam Bay
Chinese e-market is attracting a lot of investments lately. Not too long ago eBay purchased Beijing's Eachnet for $180 mln, while Interactivecorp (the owner of Expedia.com) paid $168 mln for the bulk of voting stock of Elong (a Chinese online store)...
August 14th, 2005, 03:57 AM #11
The potential Internet market in China must be huge and well-analyzed for Yahoo to shell out so much. Gotta be more to it ... will be interesting to see where it goes and how Alibaba is restructured after the Yahoo takeover.
IBM and other major corporations already have bases in China. Could be an explosion of growth soon. Evens the east/west playing field, too. :-)Peace,
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August 14th, 2005, 09:00 AM #13
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If i had the pen for the stockholders check book, it wouldn`t bother me to roll the Dice.
August 14th, 2005, 10:16 AM #14Originally Posted by Rexanne
For example, a week ago China saw the laungh of the Baidu.com search engine; and since the start of them going public, their cost per share more than trippled, exceeding 90 bucks per share...
August 14th, 2005, 10:16 AM #15
You will find that Yahoo isn't the only American company making a big run to the China market. The China market has been projected to overtake the US market sometime during the next century. Its lucky we can innovate better than any country in the world. We'll probably still have the edge by changing the market focus.Luke
Have you promoted your brand name today?
August 14th, 2005, 10:21 AM #16
See post #10 which says:
"Chinese e-market is attracting a lot of investments lately. Not too long ago eBay purchased Beijing's Eachnet for $180 mln, while Interactivecorp (the owner of Expedia.com) paid $168 mln for the bulk of voting stock of Elong (a Chinese online store)..."
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