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Alibaba's Lottery Ambition In China

|Includes: AGTEF, Alibaba Group Holding Limited (BABA)

I came across a news article talking about some lucky person winning $820k lottery prize in Hangzhou, China the birth city of Jack Ma and Alibaba.

The most important takeaway for me is that this was a carefully written article to put Alibaba Group in a favorable light and emphasizing that the group is working with authorities to provide a national service.

The article goes on to say "The store that sold the winning ticket was one of Alibaba's Rural Taobao Lottery Store that was conducting a pilot program for the Sports Lottery Authority since June 2017 to use private enterprise to expand the lottery distribution. In the most recent Five-Year Plan of Sports Lottery, one of their primary objectives was to keep growing the distribution network covering more cities, counties, townships, and villages. AGTech (8279 HK, AGTEF) with the support of Sports Lottery Administration Centers at all levels, in addition to Cuntao, Tmall store, Ling-shou-tong (零售通), Hema Fresh Store (盒馬鮮生)and other channels in Alibaba's new retail ecosystem, are also gradually choosing suitable high-quality outlets in Zhejiang and other provinces to increase lottery business.

AGTech integrates lottery sales with Alibaba's new retail entity channels. By expanding value-added business and increasing customer flow, it increases the lottery commission income of retail owners, expands social employment, innovates and leads the transformation and upgrading of the economy, improves the quality of service for people's livelihood, thus increases local sports lottery public welfare funds, and makes more contributions to national public welfare and local economic development."

Please re-read the last paragraph above. I'm sure you'd agree with me that this article is designed to put Alibaba-AGtech in a very positive light to gain public support for some approval or license of some kind to expand China's lottery business. With less than 10% of citizens ever having played lottery games (China is already #2 lottery market in the world behind the U.S.), there is a ginormous opportunity for AGtech-Alibaba.

Best way to gain exposure to the Chinese Lottery business is through AGTech, the lottery arm of Alibaba. The stock has been a dog because no one follows the sector and believes a private company will ever get a piece of the Chinese Lottery business. $700 Million Market Cap with $300 mil in cash, your downside is basically here. AGTech also owns 45% of one-year-old company GamePind, India's biggest online-mobile game platform company which is signing up players very quickly and one day soon will be worth multiple of where AGTech is trading today.

Disclosure: I am/we are long BABA. AGTEF.