Alibaba gains e-commerce edge in Kenya with Safaricom deal

To further strengthen its presence in e-commerce, Alibaba BABA has partnered with Safaricom, a Kenyan provider of voice, data, financial services and enterprise solutions.

Under the agreement, Safaricom customers will be able to make payments via the company’s M-Pesa mobile wallet when shopping on AliExpress.com, Alibaba’s shopping portal.

Moreover, Alibaba will encourage transactions in Kenyan shillings through its fintech subsidiary, Ant Financial, which will offer M-Pesa users a special payment option. Moreover, it will enable users to make purchases on AliExpress without using credit cards.

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

Move to capitalize on the growth of e-commerce

We believe that the recent transaction is beneficial for both companies. In fact, companies are aiming to expand e-commerce opportunities in Kenya, helping online shoppers in the country enjoy a seamless shopping experience in the international market with M-Pesa acceptance on AliExpress.

Individually, Safaricom’s M-Pessa user base is likely to grow thanks to its partnership with Alibaba. Kenya’s rapidly growing e-commerce market will help with this.

According to a report by Statista, the Kenyan e-commerce space is expected to generate revenue of $525 million in 2019. Moreover, the figure is expected to reach $873 million by 2023, at a CAGR of 13.5% in 2019–2023.

We believe Alibaba is well-positioned to capitalize on this potential market with the integration of M-Pesa with AliEpress. Moreover, the company is likely to gain popularity among micro-entrepreneurs in Kenya who buy goods from China.

All this is likely to expand the company’s customer base and increase its exposure to international clients. This, in turn, will drive revenue growth.

It is also expected that this will strengthen the company’s position in the e-commerce market.

Alibaba Group Holding Limited Revenue (TTM)

Alibaba Group Holding Limited Revenue (TTM) | Alibaba Group Holding Limited Quote

The payments space delivers on its promises

Increasing internet and smartphone penetration is not only encouraging the growth of online shopping in Kenya, but is also increasing the adoption of online payment solutions and mobile wallets.

According to a report by Statista, Kenya’s digital payments sector is expected to generate a total transaction value of $2.12 billion in 2019, with a CAGR of 10.5% expected from 2019 to 2023, and by By 2023, it will reach USD 3.16 billion.

Moreover, the same report states that in 2019, the mobile POS payment segment in the country is expected to generate a total transaction value of $47 million. This number is expected to grow at a rate of 38% from 2019 to 2023, and by 2023 it will reach $172 million.

Moreover, the user base in this particular segment is likely to reach 1.3 million by 2023.

By engaging Ant Financial in this transaction, Alibaba will be able to quickly penetrate the booming online payments space in Kenya.

In addition to Alibaba, PayPal PYPL, one of the largest players in online payments, also merged with Safaricom in 2018. Notably, this partnership allows Kenyans to transfer funds from their PayPal accounts to their M-Pesa wallet and vice versa.

However, Alibaba’s strategy to capitalize on growth prospects in Kenya’s e-commerce market by integrating Ant Financial’s payment options with M-Pesa is expected to strengthen its competitive position vis-à-vis PayPal.

Zacks Rank and Stocks to Consider

Alibaba is currently sporting a Zacks Rank of #3 (Hold).

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

The long-term earnings growth rates of Ctrip and Expedia are 23% and 13.4%, respectively.

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