Alibaba Group Holding Limited (BABA: NYSE), which just announced its strong financial results for the quarter ended June 30, is in talks with NetEase (NTES: NASDAQ) to acquire its cross-border e-commerce platform Kaola for USD 2 billion, according to LatePost on August 14.
Both Alibaba and NetEase declined to comment on the news as of this writing.
Observers suggest two reasons for the rumored acquisition. One is that Alibaba aims for a dominant position in the cross-border e-commerce market, so as to avoid unnecessary price war and enlarge the margins; the other goes that this is a defensive acquisition to fend off a rival bid from Pinduoduo, which is also looking to invest in Kaola to expand its cross-border presence.
According to LatePost, NetEase has been offering Koala for sale early this year and has been in close contact with Alibaba since March.
“NetEase has always been open-minded in seeking business development opportunities and strategic business partners to bring more vitality to NetEase’s cross-border e-commerce and other business units,” said NetEase’s CFO Yang Zhaoxuan, during the company’s Q1 earnings call
However, on the table of Kaola's acquisition, NetEase was actually a buyer-turned-seller. LatePost reported this February that Kaola planned to acquire Amazon's cross-border e-commerce platform through split-off. The negotiation lasted months but failed due to Amazon’s high asking price and Kaola’s own financial constraints.
Based on Analysys’s findings, Tmall, the B2C shopping platform under Alibaba, topped the cross-border market with a share of 32.3% in the first quarter of 2019. Runner-up NetEase Kaola secured 24.8%. If the acquisition were to happen Alibaba would dominate the cross-border e-commerce market with 57.1%.
Judging by the second quarter financial results of NetEase, we see an increase of net revenue in its e-commerce sector, including Kaola and Yeation, which is a no-frills marketplace selling NetEase’s own store-brand products. However, NetEase did not issue a breakdown of the gross profit.
People familiar with the matter said that Kaola generates more revenue than Yeation, but it is overshadowed by Yeation’s higher margin on the back of its self-operated business model. Therefore, NetEase would be better off to let go Kaola.