Alibaba and Tencent Plan to End Virtual Barriers

Alibaba (BABA) and Tencent (TCEHY) are contemplating opening up their services and ending virtual barriers set against one another’s offerings. Citing unknown sources, the Wall Street Journal (WSJ) reports that the drastic changes are in response to mounting regulatory pressure on how big techs operate in China.

The ending of the virtual barriers between the two tech giants would mark a significant shift in the Chinese consumer internet market. The easing of barriers would also make life more convenient for consumers and help spur innovation and competition in the sector.

Currently, Alibaba is barred from the WeChat ecosystem. In addition, people cannot use Tencent’s payment system on the Alibaba platform. The Wall Street Journal reports that Alibaba could end up introducing Tencent’s WeChat on its e-commerce marketplaces as part of the new changes. (See Alibaba stock charts on TipRanks)

According to people familiar with the matter, the e-commerce giant could also add support for WeChat in the coming months, says the WSJ report. In return, Tencent could end up making it easier for listings on Alibaba’s e-commerce site to appear on WeChat. Additionally, it could allow Alibaba’s services to have access to WeChat users through mini-programs.

Separately, Alibaba plans to add a new mobile payment service to its ecosystem developed by state-owned UnionPay. The addition is seen as an important peace offering, as the company has been entangled in a fierce tussle with regulators in China.

Deutsche Bank analyst Vitus Leung has reiterated a Buy rating on Alibaba but cut his price target to $281 from $282, implying 32.86% upside potential to current levels. The cut comes on the analyst remaining weary that the e-commerce giant’s June quarter earnings would be dominated by increased spending on investments. While the analyst expects the company to post a 33% year-over-year revenue growth, it could fall short of estimates by 4%.

Consensus among analysts is a Strong Buy based on 22 Buys and 2 Holds. The average Alibaba price target of $290.82 implies 37.50% upside potential to current levels.

BABA scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

Alibaba and Tencent Plan to End Virtual Barriers – Report