Alibaba Group Holding Ltd (BABA) Bets $600m on India Payment Provider – Paytm

Alibaba group holding ltd

Alibaba Group Holding Ltd (NASDAQ:BABA) shares were trading strongly upward before the market opened on Tuesday morning after rumors emerged that the firm was set to make a $600m bet on payments in India. The Chinese e-commerce firm is now the lead payments provider in China, and its move into India could make it one of the world’s leading payment firms.

Alibaba group holding ltd

Gulveen Aulakh & Jayadevan PK of the Economic Times of India reported early on Tuesday that Alibaba Group is in advanced talks to increase its stake in Indian firm Paytm to 40%. Alibaba Group is looking to secure 20% of the firm for $600m reads the report.

Alibaba jumps into Indian commerce

Paytm is the biggest payments provider in India and boasts 40 million wallets on its service. The Alibaba Group deal will value the firm at around $3.7 billion if closed, and will form a major part of Jack Ma’s play for the e-commerce market in India.

The source which spoke to the Economic times said that “Paytm is expected to be Alibaba’s ecommerce play in India. The plan is to create an ecosystem through companies that have large consumer touchpoints.” The market in the country is currently lead by Amazon.com Inc. (NASDAQ:AMZN), Snapdeal and Flipkart.

Snapdeal recently joined with Microsoft to sell the Redmond, Washington firm’s devices on its platform. The firm almost secured a $500 million investment from Alibaba Group and Foxconn earlier this year, but that deal fell apart on reports that the firms could not come to an agreement on price. The $500 million was set to secure a 10 percent stake in the firm, giving it a whole value of $5 billion.

Talks to close that deal were reportedly still in progress earlier in June, and the Wall Street Journal report on June 16 that talks were still ongoing. That deal may not be put aside in favor of the Paytm buy-in.

Paytm added three new members to its board just a week ago. Ruchi Sanghvi, a former Facebook engineer, Neeraj Arora, formerly from WhatsApp and Naveen Tewari, who founded InMobi, all joined the firm’s board.

Vijay Shekhar Sharma, founder and CEO said “We are a young company and need help in scaling Paytm to become India’s most dominant mobile Interncompany.” That help to scale may not come from Alibaba, if the deal to acquire part of the firm goes through.

Alibaba shares flourish

Alibaba Group shares have had a hard time in recent days as the Chinese stock market as a whole suffers a slow down. In the last five days of trading the firm has lost more than 5 percent of its value. That may turn around on Tuesday. At time of writing shares in the firm were up by 1.22%.

BNP Paribas analyst Vey-Sern Ling told those with shares to be strong through the fall of the stock market in a report issued on Friday June 26. He reduced his price target on the firm from $102 to $100, but kept a Buy rating on the stock.

Mr. Ling said that growth would not be hurt in the years ahead despite Alibaba’s reach hitting close to the total market in the coming years. “We believe the c100m new customers added in FY15 can increase spending multiple-fold as their confidence and familiarity with the platform improves,” he wrote.

Ling did say, however, that margins may be reduced as Alibaba increased its investment in many areas. Those listed in the report included digital entertainment, the creation of a mobile OS and increased traffic acquisition costs.

Alibaba has spent aggressively in many areas, including a robot concern based in Japan, and the firm’s spending may crush part of its profit from here on out. Investments, like the rumored bet on Paytm, are likely to form a big part of the firm’s future growth, however, and Wall Street is giving the firm the benefit of the doubt on Tuesday morning.

Update 11:00 EST: Added context on recent moves at Paytm, and the firm’s recent growth.

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Paul Shea

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