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China tech

Alibaba cements e-commerce dominance with $2bn Kaola acquisition

Deal gives company control over majority of China's online cross-border trade

Customers are seen at the check-out counter of a physical store of Netease's e-commerce platform Kaola in China's Henan Province.   © Reuters

HONG KONG -- China's Alibaba Group Holding has acquired cross-border e-tailer Kaola for roughly $2 billion as the country's No. 1 online retailer continues to solidify its top position against growing competition.

"Alibaba is confident about the future of China's import e-commerce market, which we believe remains in its infancy with great growth potential," said Alibaba CEO Daniel Zhang in a statement on Friday.

Kaola, which was established by Nasdaq-listed NetEase, will continue to operate independently under its current brand, but will be headed by Alvin Liu, chief of Alibaba's cross-border e-commerce initiative.

The announcement comes days before Zhang will officially take over as Alibaba's chairman after legendary founder Jack Ma steps down. The long-rumored deal is also one of the largest acquisitions by Alibaba in recent years.

Shares of New York-listed Alibaba were down 0.24% during extended trading on Thursday, while NetEase fell 0.21%.

"The move is to fend off competitions from all fronts," said an industry analyst who asked not to be named.

Pinduoduo and JD.com -- two other Chinese e-commerce players -- were reportedly in talks with NetEase to acquire Kaola. The analyst said that Alibaba's win now gives it control of "more than half" of market share in Chinese cross-border e-commerce, far outstripping rivals such as JD Worldwide, VIP International and Amazon China.

The acquisition is also expected to help Alibaba maintain growth. Over the last five years, revenue has expanded at an average annual rate of 49%. However, "top-line growth is now projected to slide to 20%" given the company's massive size, the analyst said. "Alibaba will have to rely on mergers and acquisitions to further boost its growth," the analyst added.

Alibaba, with quarterly revenue of 114.92 billion yuan ($16.7 billion), blew past analysts' expectations for the April-June period, due largely to its ability to attract new buyers in smaller cities and Chinese villages. But market observers say that selling premium products to Chinese middle classes will play a key role in Alibaba's profitability and enable the company to differentiate itself from Pinduoduo, which has grown into a Nasdaq-listed company by focusing on selling cheap goods into less-developed regions.

Despite an economic slowdown, China's hunger for high-quality food, beauty products and other imported goods generated transactions worth about $246 billion last year, according to information portal China Internet Watch.

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