Alibaba’s shopping spree needs better explanation. The Chinese e-commerce giant has spent $3.8 billion on acquisitions and investments since 2013. The land grab may excite prospective investors ahead of its long-awaited initial public offering (IPO). But Alibaba will eventually have to justify its purchases.
The operator of the Taobao and Tmall shopping sites has racked up deals worth $2.2 billion since January alone. These include a $692 million minority stake in department store operator Intime, $804 million for a majority shareholding in a movie producer, and $716 million to take full control of online mapping firm Autonavi. Alibaba has also participated in U.S. venture capital investments with a total value of $1 billion since the beginning of 2013, most recently as part of a group that invested $250 million in Lyft, the U.S. ride-sharing service.
China’s internet giants are engaged in a furious grab for market share in areas ranging from payments to video to search. Since 2013, rival Tencent has disclosed investments worth $2.1 billion, including minority stakes in companies specialising in logistics, real estate services, restaurant reviews, and taxi booking. Tencent says its purchases enhance its WeChat mobile service, which allows its 355 million monthly active users to send messages, use social media, play games, and pay for taxi fares, movie tickets and insurance.
Alibaba’s investments are less obviously linked. Its investment in Intime, for example, seems designed to strengthen links between Alibaba’s e-commerce sites and physical shopping malls, while also giving Alibaba’s payments service a boost. Buying into movie producer ChinaVision Media Group is associated with an as-yet-unspecified push into digital content. But it’s far from clear how Alibaba’s equity investments strengthen the business case for co-operation.
Other internet companies are also making big acquisitions: so far this year, Facebook has spent more than $20 billion on a messaging app and a maker of virtual reality headsets. Besides, as a private company, Alibaba has no obligation to explain its decisions in public.
Nevertheless, the upcoming IPO will pressure Alibaba to justify its spending. Bold expansion and vague talk about “ecosystems” have helped to drive Alibaba’s valuation north of $100 billion. But when it comes to growth and profitability, investors will demand a better explanation.