Alibaba Buys NetEase’s Kaola In $2 Billion Deal, Caixin Says

19-Aug-2019 Intellasia | Forbes | 6:02 AM Print This Post

Chinese internet giant Alibaba has agreed to buy NetEase’s cross-border e-commerce unit Kaola for $2 billion, as it seeks to bolster its efforts to cater to local demand for quality products from abroad, reported Beijing-based business publication Caixin. Alibaba will pay the amount in cash, according to Caixin, citing people familiar with the matter. NetEase Kaola, a unit of Hangzhou-based gaming giant NetEase, currently works with 9,000 brands from 80 countries to bring their products to Chinese consumers. It has a 27.7 percent share of the country’s cross-border e-commerce market, slightly ahead of Alibaba’s 25 percent, according to Guangzhou-based consultancy iiMedia Research.

The acquisition appears to make sense for both sides. Although Kaola has growth momentum on its side, the competition will intensify as major e-commerce players target a bigger slice of the cross-border market that iiMedia forecasts will reach 12.7 trillion yuan ($1.8 trillion) by the end of 2020. Divesting the growing but money-losing e-commerce unit would allow NetEase to better focus on its core gaming business, especially now that Chinese regulators have resumed approvals of online games and are allowing firms to charge users for newly launched titles.

“The cross-border e-commerce opportunity is huge, but Kaola has its share of problems,” Zhang says. “It requires a lot of resources to build up supplies but doesn’t have a profit margin that is anywhere close to online gaming. Selling it isn’t a bad choice for NetEase when the price is okay.”


Both Alibaba and NetEase say they don’t comment on market rumours. The e-commerce giant just reported a 42 percent jump in revenue for the April-June quarter that surged past even the highest end of analyst estimates, but it also wants to become a gateway for global brands to sell into China. It launched in June a new English-language site for foreign merchants to set up online shops and reach China’s growing middle class. Billionaire founder Jack Ma has previously said that he wanted half of Alibaba’s revenues to come from abroad by 2025.

“Buying Kaola helps to clear up the competition,” Zhang says. “Though there is the trade war and downward economic pressure, Chinese consumers still have a lot of interest in foreign brands.” billion-deal-caixin-says/#2f58f345b787


Category: China

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