Is This Bad News for BABA Stock?
Apple, Inc. (NASDAQ:AAPL) is launching a new service in China that competes with Alibaba Group Holding Ltd. (NYSE:BABA). Here’s what owners of BABA stock need to know.
Earlier this month, Apple announced that it will be launching its “Apple Pay” service in China. The company has now made it official that it will be partnering with the biggest payments company in China, UnionPay, to take Apple Pay public by early 2016. (Source: “Apple & China UnionPay to Bring Apple Pay to China,” Apple web site, December 18, 2015.)
Basically, Chinese who own UnionPay cards will be able to pay directly through their Apple devices, including “iPhone,” “iPad,” and “Apple Watch,” using the Apple Pay service. For my non-Chinese readers’ information, UnionPay is a state-owned consortium that pretty much monopolizes the payment processing space in China.
Now China is the world’s biggest smartphone market and Apple enjoys a significant market share there. The Apple brand is recognized by the all and sundry and owned by the majority of the brand-conscious Chinese. Certainly, the Apple Pay service will be welcomed by the status-conscious middle- and upper-middle class of China that views premium U.S. products as a status symbol.
Will Apple Pay Cause a Dent in Alibaba Stock?
Apple Pay will primarily compete with two dominant forces in China: Alibaba’s “Alipay” service and Tencent’s “WeChat Payments.”
Mobile payment processing is a huge market in China. In fact, Alibaba’s competitor, Tencent, drove the younger masses towards mobile payments with its “WeChat” messenger, the most popular messaging service in China. The company introduced a red envelope feature whereby users could send out a red envelope in chat with real money transferable to the recipient’s account.
In case you are unaware, the “red envelope” phenomenon is big in China, where money, as opposed to gifts, is often given by the elders to the young on big holidays like the Chinese New Year and at events like weddings and graduation.
Alibaba’s mobile payments segment, Alipay, is the crown jewel for the e-commerce giant. The online payment service not only perfectly complements its online retail model, but also its fast-expanding O2O (online to offline) business. O2O businesses offer online services that are converted offline. For instance, Alibaba’s “Didi Kuaidi,” a car-hailing service, allows users to book a ride online but use the service offline. Alibaba’s O2O business, although converted offline, still takes payments online.
I believe Alibaba has little to worry about Apple’s latest move. Apple Pay may put a slight dent in Alipay and WeChat’s individual market shares, but the damage will be insignificant.
Alibaba, in particular, has been a pioneer of mobile payments in the country for over a decade now and enjoys the biggest market share, with over 77% of the mobile payments carried out over Alipay. (Source: “China’s Mobile Payment Market,” Technode, December 18, 2015.)
The Bottom Line on Alibaba Stock
Because of the brand image it enjoys, Apple may be able to find a place for its service in the Chinese online payments space. Dethroning Alibaba will be an almost impossible task. Alibaba’s longstanding dominance in China will continue to grant it the top spot on the leaderboard.
Rest assured, BABA stock is fine.