Alibaba IPO: Latest Acquisition Brings E-Commerce to Department Stores

The Alibaba IPO is scheduled for 2014, and the Chinese e-commerce company has remained busy throughout the past year, spending more than $2.7 billion on acquisitions.

But this week, Alibaba Group Holding Ltd. made a surprising acquisition when it bought a minority stake in a Chinese department store retailer. On Monday, Alibaba announced that it had spent nearly $700 million for a 25% stake in Intime Retail Group.

Alibaba IPOIntime owns 36 department stores and shopping centers in China and reported revenue of more than $781 million in 2013. The company has a market value of approximately $17.7 billion.

Shares of Intime, which trade on the Hong Kong Stock Exchange, jumped 17% on Monday following the news and touched a 52-week high of $10.60.

Intime's stores offer high-end luxury brands, and the acquisition allows Alibaba to claim space in another major market. Recently, Alibaba purchased a 60% stake in the Chinese entertainment company ChinaVision and a 10% stake in the appliance maker Haier Electronics Group Ltd.

Clearly, inserting its brand into numerous industries is Alibaba's strategy ahead of its highly anticipated and possibly record-breaking IPO.

But the Intime acquisition isn't just about breaking into the brick-and-mortar retail market for Alibaba.

It's about strengthening Alibaba's position in the e-commerce market - an e-commerce market that will continue to make Alibaba a global leader and push its IPO into record territory...

Alibaba IPO: Leading a $420 Billion Market

At the time of the Intime acquisition, Alibaba officials detailed their plan to bridge its e-commerce business with traditional retail. Alibaba believes it can use its massive online customer base to help Intime improve its e-commerce business.

"We see significant opportunities to extend our e-commerce platform to physical retail, developing a more engaging, omnichannel and digitally connected shopping experience," Alibaba's Chief Operating Officer Daniel Zhang said. "[The partnership] will allow for the increased integration of online technologies at physical points of sale."

Officials also announced an "online-to-offline," or O2O, joint venture among the companies. According to Reuters, the O2O model will suggest shopping trips or purchases based on a consumer's location. The plan is to tap into the burgeoning mobile e-commerce market, and Alibaba will control 80% of the O2O project.

Advancing Intime's position in the e-commerce industry is Alibaba's main goal. And it's Alibaba's presence in China's e-commerce market that will send its 2014 IPO to record highs...

Alibaba is the largest e-commerce company in China, which is the second-largest e-commerce market in the world. According to the research firm McKinsey & Co., e-commerce in China was a $210 billion industry in 2012, and that's expected to increase to $420 billion by 2020.

More than $240 billion worth of merchandise was purchased over Alibaba's platforms in 2013. That's more money than was spent on Amazon.com Inc. (Nasdaq: AMZN) and eBay Inc. (Nasdaq: EBAY) combined that year.

On China's "Singles' Day" holiday (Nov. 11, 2013), more than $5.7 billion exchanged hands on Alibaba's network of sites in just 24 hours.

In the first nine months of 2013, Alibaba reported revenue of $1.78 billion - an increase of 51% from the previous year. Through the same time, net profits climbed 45% to $792 million.

Because of Alibaba's role in the massive Chinese e-commerce market, eight analysts polled by Reuters in February estimated that Alibaba could reach a valuation of $140 billion. At the time, projections for the Alibaba IPO saw the company raising as much as $15 billion in the deal.

Now that Alibaba has breached $3 billion in acquisitions in the past year and is bringing its e-commerce strength to other retail markets, it's entirely possible that Alibaba could reach the $16 billion IPO mark. That would put Alibaba among the biggest IPOs in U.S. history.

Have you been following the Alibaba IPO? Will you be investing in Alibaba? Let us know on
Twitter @moneymorning using #Alibaba.

This digital-payments stock has been making all the right moves. And it's the best play in a trillion-dollar market...

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