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Alibaba Makes a $635 Million Home Improvement Bet

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Alibaba shows a strong appetite for home improvement businesses

Alibaba (BABA) is on track to own a substantial stake in Chinese home improvement and furnishing company Red Star Macalline. Alibaba has bought ~$635 million worth of convertible bonds in Red Star Macalline, which will convert into a stake of ~10% in the home improvement company, according to TechCrunch. In addition to the bond investment, Alibaba also purchased a 3.7% stake in Red Star Macalline in the public market. The stock is listed on the Hong Kong stock market.

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Red Star Macalline is the latest home improvement–focused business in which Alibaba has invested. Last year, Alibaba invested more than $860 million in the purchase of a 15% stake in Chinese home improvement chain Easyhome, Reuters reported. Also last year, Alibaba made an investment of ~$25 million in home improvement provider Shengong.

Alibaba pursues a $1.1 trillion opportunity

Why is Alibaba interested in home improvement businesses? The answer may lie in the numbers. The home improvement market is expanding, creating a lucrative business opportunity. The global home improvement market was valued at $800 million in 2018, according to Global Market Insights, which now projects that it will top $1.1 trillion by 2025. In countries such as China, where governments are keen to improve energy efficiency as a way to cut pollution and protect the environment, the home renovation market seems to have a bright future, and Alibaba has shown that it wants to be part of that future.

Alibaba generated revenue of $13.9 billion in the fourth quarter of fiscal 2019, an increase of 51% YoY (year-over-year). Revenues rose 20.9% YoY at JD.com (JD), 17% YoY at Amazon (AMZN), and 16% YoY at Tencent (TCEHY) in their comparable quarters. eBay (EBAY) recorded revenue growth of 2.0% YoY in the quarter.

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