Alibaba Group Holding Ltd (NYSE:BABA) does not have a business model of a technology company like Google Inc (NASDAQ:GOOGL) for example, but many investors do not realise this. In a panel discussion on Bloomberg , Crid Yu, Google China’s former executive, and Paul Kedrosky who is a Bloomberg contributing editor shared their views about Alibaba Group Holding Ltd (NYSE:BABA).
While Yu tried to see Alibaba’s IPO n the same light as Google Inc (NASDAQ:GOOGL)’s IPO during his time when he was at the helm of the company, Kedrosky strongly disagreed with the similarities that Yu was drawing between the two companies.
“[…] It [Google Inc (NASDAQ:GOOGL)] was over reliance on a single product, a single strategy, a single thing called search, whereas with Alibaba Group Holding Ltd (NYSE:BABA) I think the legitimate criticism is this looks like a conglomerate with many many material contributing pieces of the business, all very difficult to untangle, it seems predicated on a financial not a technology strategy […],” said Kedrosky.
Kedrovsky reminded other panelists that Alibaba Group Holding Ltd (NYSE:BABA) is a conglomerate and not a tech company like Google Inc (NASDAQ:GOOGL). He explained the story behind Alibaba Group Holding Ltd (NYSE:BABA)’s exceptional growth figures and the philosophy of its business model.
According to Kedrovsky the growth secret of the Chinese e-commerce company lies in its low margins, which are the result of low R&D expenses. Low R&D has a very unnatural ring to it, if we are talking about the technology sector. Kedrovsky explained that Alibaba Group Holding Ltd (NYSE:BABA) relies on acquiring various start ups and then shoulders itself on their growth. The company has also recently opened up an office in silicon valley to this extent as it entrenches itself in the US market.
Is the weight of the holding company soon going to be too much to be shouldered by its diverse businesses? How long will Alibaba Group Holding Ltd (NYSE:BABA)’s management be able to find these profitable startups? These are some of the questions that investors might be overlooking while they get carried away in the heat of the world’s biggest IPO.
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