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How Does Alibaba Operate Ele.Me?

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Alibaba’s bet on China’s local services market

Last year, Alibaba (BABA) made a big bet on China’s local consumer services industry with its acquisition of online food delivery provider Ele.me in a transaction that valued the business at $9.5 billion. The takeover meant Alibaba buying out other Ele.me investors such as Baidu (BIDU).

China’s online food delivery market is flourishing. It expanded 23% to $31.9 billion in 2017, according to a report from Meituan Waimai cited by China Daily. The market is expected to continue growing as more Chinese consumers come online and the country’s wealthy consumer base expands.

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Ele.me and Koubei merged

Last year, Alibaba took control of Ele.me. It merged Ele.me with its other local services business called Koubei in a reorganization completed in December. Following the merger, Ele.me and Koubei operate under a separate holding company focused on local consumer services. That company is jointly owned by Alibaba and other investors including SoftBank (SFTBY), the parent of American mobile operator Sprint (S). Investors put more than $3.0 billion in the Ele.me holding company.

A strategic operation

Alibaba generated $750 million in revenue in its local services business in the December quarter with Ele.me being the primary contributor of income. Ele.me last year won a contract to deliver coffee to Starbucks (SBUX) customers in China. According to Alibaba, the local services operation is strategic to its consumer-facing business, as it increases its ability to better capitalize on China’s growing consumer spending.

Alibaba made $4.8 billion in profit in the December quarter. Amazon made a $3.0 billion profit in that period.

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