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BNP Report: Alibaba Can Expand Operations with $38B in 2016

December 15
11:50 PM 2015

If you haven't heard of it, Alibaba is a Chinese e-commerce company that started as a e-marketplace and now has grown to offer other services like electronic payment and cloud computing. They've become one of the biggest companies in China and now, they have even more money to expand with possibly $38 billion available for deals next year.

According to Bloomberg, analysts at BNP Paribas made the estimate based on Alibaba's available cash, ability to handle debt, and their projected cash flows. Alibaba comes ahead of the estimated spending power of Tencent's $35 billion and Baidu at $15 billion.

Alibaba, combined with the two Chinese companies, Baidu Inc. and Tencent Holdings Ltd, form the three biggest Internet companies in China, known as "BAT". Vey-Sern Ling, lead analyst in the BNP Paribas report, projected that, all together, the three would have more than $80 billion for mergers and acquisitions in the upcoming year.

The anticipated figure will allow the three to go far beyond what they did in 2015 with the record for the year at $30 billion spent. "BAT" is anticipated to continue to expand into new markets beyond their original focus of e-commerce. As Michelle Ma, an analyst with Bloomberg Intelligence explained, " There's definitely potential for many more deals to happen. BAT are consolidating and they're going after smaller players which may struggle to survive on their own."

With a $1 trillion market for services possibly available in the years to come, experts think the three's massive spending power would speed industry consolidation. As Ling wrote in the BNP report, "Consolidation favours the strong. The merged entities benefit from reduced competition, while BAT get to further their strategic goals and still benefit from a broadened ecosystem."

Because of the difficult, slow economy in China the three are becoming the main buyers that everyone approaches for venture financing. The startups, like the big three themselves, have spent more of their money on attractive incentives for customers to quickly grow their user base than any other aspect. The difference between the startups and BAT is that the startups now are getting pressure from their investors to cut down on spending while BAT doesn't have that problem.

The focus of the spending during the past year has been in online to offline services (O2O) like delivering food to you or someone to fix the sink. Seeking Alpha noted that BAT has already done a $15 billion merger between Alibaba's Meituan.com and Tencent's Dinaping.com who offer movie tickets, restaurant bookings, and other group services. And earlier in the year Alibaba's Didi Dache merged with Tencent's Kuaidi to compete with Uber.

Analysts warn that despite that all three are rated as "buy," Alibaba and Baidu's growth may slow down due to the market maturing. Tencent has the most opportunity for growth from its online games and advertising. 

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