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Alibaba in collaboration with SoftBank to invest $3 billion in food delivery service Ele.me

Aug 24, 2018, 3:15 pm

Ele.me, owned by Alibaba, and Koubei, is a food delivery business that has been merged and received $3 billion in funding from the Chinese eCommerce giant and SoftBank. Alibaba said in its earnings statement that Ele.me would be merged with Koubei, an affiliate company that focuses on bringing local businesses online by providing payment and other technology services.

We will combine Koubei, which would result in a material one-off revaluation gain when the transaction closes – Alibaba.

It is still unclear whether the investment from SoftBank is coming from its $100 billion Vision Fund. The funding comes at a time when it most needed as Alibaba is battling online rival Tencent in the food delivery space. Tencent is a key service app that enables people to order food and buy things like movie, tickets and stuffs.

Recently Alibaba announced its interest to partner with Starbucks to start delivering its coffee to customers in September. The company believes that this partnership will be of great gain from both the company’s end as it will help to expand the delivery program to more than 2,000 Starbucks stores across 30 Chinese cities by the end of 2018.

Alibaba’s healthy and stable core marketplace margin of 62% enables them the higher flexibility to expand into larger addressable revenue” – Karen Chan, in a note for the clients.

The second headquarter results were showed on Thursday which showcased their revenue soar 61% to 80.9 billion yuan slightly topping the 80.88 billion yuan.

Given full-quarter consolidation of Ele.me, we expect FY2Q19 core commerce EBITA margin of 41%, -16pcpt YoY, with growth reaccelerating to 26% YoY in 2HFY19 vs. 19% in 1H upon anniversary effect from Cainiao consolidation and new retail” said Chan, who believes that these investments would enlarge opportunities.

Alibaba is in the hope that pairing Koubei with Ele.me, can provide a strong rival to those companies that can compete for China’s online to offline market.

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