Alibaba's founder Jack Ma and Suning chairman Zhang Jindong, with officials from both companies, pose for a photo at the announcement of the two companies' cooperation in Nanning, Aug. 10. (Photo : www.arabianbusiness.com)
Alibaba Group Holding Ltd. made a $4.6-billion investment on Monday, Aug. 10, when it acquired electronics retailer Suning Commerce Group Co. Ltd., posing a challenge to JD.com in two areas: logistics and electronics.
Reuters reported that Alibaba's bold move surprised investors, knowing that the e-commerce titan has traditionally stayed away from physical, offline assets.
According to analysts, Alibaba is likely interested in Suning's logistics network that covers nine-tenths of the country's counties, and will enable it to compete with JD.com's in-house warehousing and delivery system.
"Instead of building the network itself, it saves more time through this kind of deal," Walter Woo, an analyst with Oriental Patron Finance Group in Hong Kong, said.
On Wednesday, Aug.12, Alibaba said that its revenue for the three months increased by 28 percent to $3.27 billion, its slowest growth rate in more than three years.
According to Reuters, Suning is now worth 149 times than its earnings for the last 12 months.
The report said that JD.com's recent growth in the total value of goods sold on its platforms has triggered Alibaba to buy Suning.
In 2013, JD.com's gross merchandise volume went from 21 percent to 42 percent than Alibaba's TMall, in the year ending June, data from Morgan Stanley Research showed.
"This likely might have triggered Alibaba and Suning to form a closer alliance to fight back," Alicia Yap, a Hong Kong-based Barclays Internet analyst, said.
Since Aug.10, JD.com's shares have gone down 12.6 percent, the biggest two-day drop since it went public in May last year, but the company played down the threat.
"When we began investing in same-day delivery, people wrote us off as dead," a JD.com spokesman in Beijing said. "More than five years later, e-commerce companies in the U.S. and China see our superior service and realize investing is the only way they can survive."
Reuters added that Alibaba also wants to hook up its other Internet services, such as Alipay, its affiliate online payment system, with Suning, a move welcomed by its investors.
