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Alibaba Group Holding Ltd (NYSE:BABA) Splurges $4.6B on Physical Stores

Alibababa group holding ltd pepper the robot

Alibaba Group Holding Ltd  revealed this morning that it had put $4.6B into Suning Commerce Group Ltd, a firm that owns and operates electronics stores across China. The move, which comes right ahead of the firm’s earnings reveal for the three months through June, gives Alibaba Group Holding a new partner, and a presence on the street in the country.

Alibababa group holding ltd pepper the robot
Alibaba Group Holding Ltd recently invested in Pepper, a robot developed by Softbank.

Alibaba Group holding bought 19.9 percent of Suning in the deal. Suning, in turn will use part of the proceeds to buy shares in Alibaba. The massive cash injection will help Alibaba to secure a shipment network that will allow it to improve its service and shorten shipment times for many users.

Alibaba wants better shipping

Alibaba , more than anything, is interested in improving shipping times as more and more users in China buy products off of the firm’s site.

The firm has 1,600 stores in 289 cities across China. The deal will make each store a key point on the Alibaba Group Holding Ltd delivery map, making the time between order and shipment shorter for many users.

Improving user experience, despite poor infrastructure in China, is the goal of many of the buyouts that Alibaba  has involved itself in in 2015. That spending habit has not won the firm many plaudits among those with shares, however. They’re looking to see wider profits as the firm’s sales growth balloons.

Alibaba Group Holding spends big

The Suning investment is not the first that Alibaba  has made in recent months. Since going public in September of 2014 the firm has been very active. It has used its large cash reserve to gain exposure to firms in a number of markets and, despite a slow own in China and a drop in the firm’s share price, those tactics don’t seem to be going away.

Alibaba will release its earnings numbers for the three months through June on Wednesday August 12. Wall Street is looking for the firm to show earnings of 58 cents per share for the quarter. Sales for the period are expected to come in at $3.4B.

In the same three months of last year Jack Ma’s firm earned 45 cents per share on sales of $2.6B. Alibaba’s spending habit, like that of Amazon.com Inc. before it, is eating into the firm’s profits. With the economy in China slowing down, many on Wall Street would expect Alibaba Group Holding to tighten its belt and prepare for the worst.

That’s not happening. It’s likely to form a key part of the earnings call on Wednesday. Those with shares, which have lost close to 10 percent over the last three months, will want to know how Alibaba intends to weather the coming storm, and whether spending its cash reserves is such a good idea right now.

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