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Alibaba Gains E-commerce Edge in Kenya With Safaricom Deal

In a bid to bolster its e-commerce presence further, Alibaba BABA has teamed up with Safaricom, a Kenya-based provider of voice, data, financial services and enterprise solutions.

Per the deal, Safaricom’s customers will be able to make payments via the company’s mobile-money wallet, M-Pesa, while shopping on AliExpress.com, an online shopping portal of Alibaba.

Further, Alibaba will encourage transactions in terms of Kenyan shilling via its fintech subsidiary, Ant Financial, which will offer a specific payment option for M-Pesa users. Moreover, this will enable users to shop on AliExpress without using credit cards.

We note that the latest deal will strengthen Alibaba’s presence in Kenya.

Move to Leverage E-commerce Growth

We believe the recent deal is a win-win situation for both the companies. In fact, the companies are aiming at expanding e-commerce capabilities in Kenya by helping online shoppers of the country to enjoy shopping on international marketplace seamlessly with acceptance of M-Pesa on AliExpress.

Individually, Safaricom’s M-Pessa user base is likely to expand on account of its partnership with Alibaba. This will aided by rapidly growing e-commerce market in Kenya.

Per a report from Statista, Kenyan e-commerce space is expected to generate revenues of $525 million in 2019. Further, the figure is anticipated to reach $873 million by 2023 by witnessing a CAGR of 13.5% between 2019 and 2023.

We believe Alibaba is well poised to reap benefits from this potential market with the help of integration of M-Pesa into AliEpress. Moreover, the company is likely to gain traction among the micro traders in Kenya who purchase goods from China.

All these are likely to expand the company’s customer base and boost its exposure to international customers. This in turn will drive its top-line growth.

Further, it is expected to strengthen the company’s position in the e-commerce market.

Payment Space Holds Promise

Growing penetration of internet and smartphone usage is not only aiding growth of online shopping in Kenya but also bolstering adoption rate of online payment solutions and mobile wallets.

According to a Statista report, the digital payments sector of Kenya is expected to generate a total transaction value of $2.12 billion in 2019 which is expected to witness a CAGR of 10.5% between 2019 and 2023 and reach a value of $3.16 billion by 2023.

Further, the same report shows that the country’s mobile POS payments segment is anticipated to generate a total transaction value of $47 million in 2019. The figure is expected to witness a CAGR of 38% between 2019 and 2023 and to hit $172 million by 2023.

Further, user base in this particular segment is likely to hit 1.3 million by 2023.

Alibaba by involving Ant Financial in this deal will be able to rapidly penetrate into the booming online payment space of Kenya.

Apart from Alibaba, PayPal PYPL , one of the largest online payment players, also joined forces with Safaricom in 2018. Notably, this partnership enables Kenyans to transfer funds from PayPal accounts to M-Pesa wallet and vice versa.

However, Alibaba’s strategy of leveraging the growth prospects in Kenya’s e-commerce market by integrating Ant Financial’s payment option into M-Pesa is expected to strengthen its competitive position against PayPal.

Zacks Rank & Stocks to Consider

Currently, Alibaba carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the retail-wholesale sector are Ctrip.com International CTRP and Expedia Group EXPE . Both the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Ctrip and Expedia is pegged at 23% and 13.4%, respectively.

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