Caixin
Sep 06, 2019 08:25 PM
BUSINESS & TECH

Alibaba Buys Rival E-Commerce Platform NetEase Kaola for $2 Billion

Alibaba will acquire cross-border e-commerce platform Kaola, owned by Netease, for $2 billion. Photo: IC Photo
Alibaba will acquire cross-border e-commerce platform Kaola, owned by Netease, for $2 billion. Photo: IC Photo

Alibaba Group Holding Ltd., China’s largest e-commerce giant by market share, said on Thursday it will pay $2 billion to acquire cross-border e-commerce platform Kaola from NetEase Inc.

The announcement, which comes after Caixin reported a potential deal last month, marks the latest consolidation in China’s ultra-competitive online shopping market. NetEase Kaola, the biggest import retail e-commerce platform in China, is an archrival of Alibaba’s Tmall Global.

Kaola will continue to operate independently under its brand, according to the statement, while Tmall Import and Export General Manager Alvin Liu will take over as CEO.

The purchase could help Alibaba confront the challenges posed by fast-growing Pinduoduo, a Tencent-backed online group discounter, said Cao Lei, director of the China E-Commerce Research Center, in a note Friday.

Launched in 2015, Kaola carries more than 9,000 brands from 80 countries including apparel, maternity and infant care, household appliances, personal care and other products. According to iiMedia Research Group, the company held a 27.5% market share in cross-border e-commerce in 2018 and Tmall Global, for 25%.

Unlike Tmall Global, a marketplace that allows merchants set up their own store on the platform, Kaola primarily purchases its products from suppliers, stocks them and sells them to customers. The consolidation would help Alibaba integrate Kaola’s relatively stronger logistics and warehouse system into its logistics arm Cainiao Network Technology Co. Ltd., said analyst Lin Zhiyong in a research note.

Cainiao sources have previously told Caixin that the company was cooperating with Kaola.

Meanwhile the deal will let NetEase offload part of its low-margin e-commerce business and focus on its bread-and-butter gaming business.

NetEase’s e-commerce business, which incorporates Kaola and the e-commerce platform NetEase Yanxuan, contributed around one-third of the company’s total revenue. Growth of its e-commerce business slowed to 20.5% in the second quarter this year from 175% in the fourth quarter of 2017. The business has had an average profit margin of 10% over the past three years, lower than JD.com’s 13% to 15%.

Alibaba has also agreed that the company, along with Alibaba-founder Jack Ma’s private equity fund Yunfeng, will invest $700 million in music streaming platform NetEase Cloud Music. Alibaba’s own music app Xiami lags far behind the trio of Tencent’s QQ Music, Kugou Music and Kuwo Music — the three largest music streaming apps by market share. NetEase Cloud Music is the fourth largest music app.

Han Wei contributed to this report.

Contact reporter Tang Ziyi (ziyitang@caixin.com)

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