Alibaba Group Holding Ltd (BABA)’s Expensive Bet In Chinese Smartphone Market With $590 million In Meizu

Alibaba Group Holding Ltd (NYSE:BABA) was busy stretching its hand into many businesses lately. Alibaba Group Holding Ltd (NYSE:BABA)’s CEO Jack Ma has made a lot of attempt to expand the business in past few months. Though, the stock hasn’t done quite well in 2015, with stock prices going down by more than 17% YTD. In a recent revelation, Alibaba Group Holding Ltd (NYSE:BABA) has reportedly bought a huge chunk in Chinese domestic smartphone maker Meizu Technology Co. A ‘Reuters’ article discussed about this and its implications for Alibaba Group Holding Ltd (NYSE:BABA).

One another e-commerce giant like Alibaba Group Holding Ltd (NYSE:BABA), Amazon.com, Inc. (NASDAQ:AMZN) has already made an attempt to make its very own smartphone, Fire phone, but did not go places. But, Alibaba Group Holding Ltd (NYSE:BABA) has taken a different route by $590 million stake in a domestic smartphone maker Meizu Technology Co.

Chinese smartphone market is actually crowded and many big domestic names like Xiaomi Inc, Huawei Technologies Co Ltd, Lenovo Group and global names like Apple Inc (NASDAQ:AAPL) and Samsung Electronics. What can Alibaba Group Holding Ltd (NYSE:BABA) group achieve by buying stake in a struggling mobile maker in China?

On the flipside, Meizu will get access to Alibaba Group Holding Ltd (NYSE:BABA)’s sales channel, which might be beneficial for the smartphone maker. Many feel that this is an expensive experiment from Alibaba Group Holding Ltd (NYSE:BABA).

“You could say they’re spending $590 million to experiment a bit and see what happens – it’s an expensive experiment, right? My concern is that some internet players are confusing being able to just spend a couple hundred million dollars to buy a piece of hardware that looks pretty cool but is essentially a copy of what Apple has done and what Xiaomi has done,” Michael Clendenin, MD at Red-Tech Advisors said.

Some data shows that Meizu has only 2% market share in the Chinese smartphone market, whereas more than 60% market share is accounted for by big 5 names.

Disclosure: None

Free Report: Warren Buffett and 12 Billionaires Are Crazy About These 7 Stocks

Let Warren Buffett, David Einhorn, George Soros, and David Tepper WORK FOR YOU. If you want to beat the low cost index funds by an average of 6 percentage points per year look no further than Warren Buffett’s stock picks. That’s the margin Buffett’s stock picks outperformed the market since 2008. In this free report, Insider Monkey’s market beating research team identified 7 stocks Warren Buffett and 12 other billionaires are crazy about. CLICK HERE NOW for all the details.