Alibaba's (NYSE:BABA) online payment affiliate Alipay expanded its cooperation with Uber (Private:UBER) in which Chinese Alipay users can now pay for Uber rides with Alipay when traveling outside of China. The cross-border payment cooperation is the first between Alipay and Uber, and will start in Hong Kong, Macau and Taiwan this month. Additional regions will be available later in the year although neither Uber nor Alipay has specified which region.
I see several positives with this strengthening of the partnership between Alipay and Uber: First, the growing partnership between Uber and Alipay allows Uber to be the preferred transportation method for Chinese travelers overseas where Uber is the dominant ride-sharing app. Second, Uber's growing popularity in the ex-China market allows Alipay to potentially become a viable third-party payment application that could challenge Apple Pay (NASDAQ:AAPL), Android Wallet (NASDAQ:GOOG) (NASDAQ:GOOGL) or Samsung (OTC:SSNLF) Pay. The growing awareness of Alipay in overseas markets could establish a foundation for Alipay's international expansion plan and this is highly accretive to its long-term growth. I remain bullish on BABA on the back of this partnership. Recall that my view on BABA is that the company has the most comprehensive ecosystem in e-commerce, media, payment, mobile OS and cloud relative to its peers, and this positions BABA favorably as the most attractive investment for the next decade.
Last year, roughly 150m Chinese tourists traveled to an overseas market spending over $230b on everything from food, luxury goods, cosmetics and even Kirkland Signature vitamins. One thing in common among these tourists is that they are all relatively tech savvy, familiar with Didi-Kuaidi and frequent users of Alipay app for their everyday purchases. That said, Uber's decision to expand its partnership with Alipay is a logical choice given that it is the dominant ride-sharing app ex-China. Although outbound tourism may take a hit this year due to the depreciation of the Yuan, I expect tourism trends to be healthy and a rising number of outbound tourism will directly benefit Uber as they look for an affordable and convenient transportation method. Although the new international markets center around Asia, I expect US, Canada and Australia to be the next three probable countries where Chinese users can use Alipay to book Uber given the relatively large number of Chinese populations in those countries. Given that Uber will remain the dominant ride-share app ex-China, there is little downside for Uber under this partnership.
As for Alipay, promoting its brand ex-China is crucial to drive its global penetration and Uber could potentially be an attractive vehicle to achieve this goal. With Alipay gradually making its way to overseas markets as a form of payment method similar to that of UnionPay, I expect Alipay to penetrate deeper into the overseas market to compete with established mobile payment formats and independent payment providers (ie. PayPal and Square). To be clear, the entry into the US market by Alipay could be years away but it is a distinct possibility given how BABA is looking to grow its e-commerce platform in North America. Under such a scenario, Alipay/Ant Financial may be necessary in providing financial services to merchants and facilitating consumer transactions.
Conclusion, I remain bullish on BABA. The company's recent quarter suggests improving core business and monetization. Current valuation of 20x CY2016E earnings does not fully reflect its true potential.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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