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Alibaba's overseas growth push faces European test

HONG KONG (Reuters Breakingviews) - Alibaba’s hunt for growth outside the People’s Republic is getting urgent. The $223 billion Chinese e-commerce company hopes to offset sluggish demand at home by expanding in Europe through its Southeast Asian offshoot, Lazada, Reuters reported citing sources. But with a European market share of less than 5%, and entrenched rivals like Amazon, it may struggle to justify the investment. The online shopping giant is set to report revenue of just 199 billion yuan ($29.8 billion) in quarter to March, a record low 6% increase from a year earlier, according to analyst forecasts compiled by Refinitiv. More pain lies ahead: Covid-19 lockdowns in Shanghai and other major cities have hit consumer spending, with total transactions on Alibaba’s flagship Tmall retail site in April falling 13% year-on-year, estimates research firm YipitData. A slowing home market gives boss Daniel Zhang fresh impetus to look abroad. Despite taking control of Singapore-based Lazada in 2016, alongside global tie-ups with Richemont and others, domestic commerce revenue still made up 67% of its total sales in the six months ended in September, versus 7% from abroad. Yet Europe, where Lazada is readying a big push, is a surprising choice. Alibaba has been in the region for over a decade, with its AliExpress unit flogging cheap goods from China. Its overall track record has been underwhelming. Last year, the site had just a 4% market share in Western Europe, far behind Amazon’s 20%, Euromonitor International data show. In Eastern Europe, its 5% share also trails Russia’s Wildberries and Poland’s Allegro. At the same time, competition is intensifying in Southeast Asia. Revenue growth at Lazada, which in 2020 appointed its third chief executive in three years, slowed from triple-digit pace a year earlier to 52% in the December quarter, as rivals like the Sea-owned Shopee take market share. A recent boycott of Lazada from Thailand’s army for allegedly mocking the country’s royal family in a promotional video may further jeopardize growth. It’s not clear yet how much Lazada’s European pivot will cost Alibaba. The subsidiary recently new shares worth nearly $400 million to its parent, but building a logistics network in the region to take on Amazon will likely require more resources. With Alibaba’s stock down 30% this year, and its forward price-to-earnings valuation hitting new lows, investors have plenty of reason to believe the money could be spent more wisely. CONTEXT NEWS - Alibaba plans to report its quarterly earnings before New York markets open on May 26. - Alibaba plans to expand its Southeast Asian arm, Lazada, to Europe, Reuters reported on April 28 citing two sources familiar with the matter. Lazada plans to target local European vendors, while Alibaba’s existing global platform, AliExpress, will continue to focus mainly on cross-border sales from China, one of the sources said. - The Thai army said on May 9 it will ban its 245,000 members from using Lazada for official purposes after royalists said a promotional video appeared to mock the royal family. Thailand has strict lese majeste laws and courts can hand down jail terms of up to 15 years for each offence of defaming, insulting or threatening King Maha Vajiralongkorn, the queen, heir or regent. (Editing by Robyn Mak and Katrina Hamlin) The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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