Alibaba Group Holdings Ltd. (BABA), the Chinese ecommerce giant, is raking in the cash to the tune of around $1 billion from its stake sale in Momo (MOMO), the Chinese location-based mobile social networking service.
According to a China Money Network report, Alibaba had invested roughly $25 million in Momo during 2012 and 2013, and while its stake in the company had stood at 20.7% when Momo went public in 2014, it has dropped so low that Alibaba is no longer named as a principal shareholder in the company. With shares of Momo increasing more than 130% during the past year, Alibaba has been unloading its stake and currently only owns a 5.78% stake as of early April, reported China Money Network. Based on the average share price of Momo during the period, China Money Network calculated Alibaba made more than $1 billion. (See also: Alibaba Contrarian: Ignore Bulls, Sell This Stock.)
It’s not just Alibaba that has reduced its stake in Momo. The report noted that Matrix Partners China lowered its stake to 10.6% from 17.2% in 2016, while Sequoia Capital China and Yunfeng Capital also reduced their holdings to 3% from 4.8% last year. Like Alibaba, the other Momo investors likely yielded a high return on their investments.
Up More Than 100% This Year
In 2015, according to China Money Network, Momo’s management partnered with Matrix Partners China, Sequoia Capital China and Alibaba in an effort to take Momo private, but the deal never materialized because the stock market in China tanked. Momo’s stock was able to bounce back and march higher. On Thursday, shares of Momo closed at $38.38 a share. Shares are up more than 100% since the start of 2017. (See more: Alibaba May Earn $16B In Mobile Ad Revenue in 2017.)
Alibaba likely welcomes the $1 billion proceeds from the stock sales given that the ecommerce giant is looking to expand and get into other businesses and markets. Last month, Reuters reported that Alibaba is looking to raise $5 billion in a fresh round of funding, with proceeds going in part to refinance existing loans and other corporate purposes.
Sources told Thomson Reuters’ Basis Point that Alibaba is looking to raise the money outside of China through a bullet loan with a maturity of five years. A bullet loan is a loan that requires a balloon payment at the end of the term. The fundraising comes as other technology companies in China look for more cash, with Alibaba rival Tencent Holdings reportedly aiming to raise as much as $2 billion in new debt. In April, Alibaba spent around $1 billion to purchase a majority stake in Lazada Group, the Southeast Asian online retailer. It also invested $1.25 billion in Ele.me, a food delivery service in China. Both deals are in line with the company’s plan to expand its offering into other high-growth markets.