Alibaba Risks 'Saturation' If It Doesn't Expand To New Markets Soon, Says Analyst

Alibaba Group Holding Ltd BABA needs to expand its horizons beyond China and Southeast Asia if it is to keep up current levels of growth, an analyst told CNBC Thursday.

What Happened: Gil Luria, director of research at D.A. Davidson, talking on the “Squawk Box Asia” program, said that the Jack Ma-co-founded tech giant’s growth strategy of focusing on lower-tier cities in China may not pay off as it faces high competition.

The analyst said that with the Chinese market approaching saturation, Southeast Asia is “only going to carry them for so long before they have to get into some of those other markets in order to sustain this growth.”

Potential markets for growth include Latin America and Africa, noted CNBC.

Why It Matters: National security concerns and worsening relations between the two countries have impacted the ability of Chinese companies to grow in the U.S. 

In 2018, the U.S. blocked the sale of MoneyGram International, Inc. MGI to Alibaba affiliate Ant Financial, Reuters reported.

“That really slowed down their ability to grow into the U.S. and the West in a variety of businesses,” Luria said, referring to the blocked deal.

The analyst said decoupling of the two economies would limit Ant Financial’s ability to gain a foothold in the U.S., and to a smaller extent, also that of Alibaba’s. 

Luria expects Ant Financial’s dual listing in Shanghai and Hong Kong to be popular among investors.

Growth for Alibaba may come from other segments. The company’s cloud business only second to Amazon.com, Inc AMZN is likely to turn profitable in the current fiscal, Alibaba’s Chief Financial Officer Maggie Wu told CNBC.

Price Action: Alibaba shares closed nearly 6.2% higher at $293.98 on Wednesday and gained almost 0.4% in the after-hours session.

Photo courtesy: Thomas Lombard via Wikimedia