Sky-mobi to Benefit from Alibaba Monopoly

Jacob Harper  |

Alibaba, the Chinese e-commerce mega-behemoth that holds a basic monopoly over online trade in the East, is in the midst of preparations to get their slice of the American pie. Alibaba’s impending IPO will be the largest Stateside since Facebook's  (FB) , and, as they prepare to debut on the American market, they’re bringing along a few friends.

Make no mistake, Alibaba is King Supreme of Chinese e-commerce, but even the King needs a few helpers. Alibaba’s US counterpart Amazon ($AMZN), for instance, isn’t afraid to broker deals with a supposed rival, the much-smaller HBO (TWX) , to mutually benefit both companies.

And so it goes with Alibaba as well, who have enlisted the help of Chinese app publisher Sky-Mobi (MOBI) who will become a key distributor The announcement sent Sky-Mobi shares up, and looks to be a boon going forward for the recently struggling tech company.

Sky-mobi Gets a Reprieve

Sky-Mobi’s stock had fallen precipitously in the last three months, after touching a YTD high of $12.69 a share in March. Shares pulled back after the uptick on news the company’s revenue was falling behind industry norms, causing shares to dwindle, settling near $6 apiece in May.

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Still, Stateside investors have tended to be more bullish on the company. What analysts and investors have always liked about Sky-Mobi is its close ties to the low-cost smartphone market. Well, most of them at least. Short-seller Citron Research, fans of both unmasking Chinese fraud companies and hyperbolic research reports peppered with phrases like “Wake up people!”, issued a hit piece on Sky-Mobi in 2011, assigning a price target of $3 a share and saying they were engaging in an outdated market and focusing on low-end users was too niche and short-sighted.

Fast forward to 2014. Citron has changed their tune considerably, tweeting out in March that Sky-Mobi had “too much blue sky, too little market cap” and disclosing they were long the stock. Guess it looks like the low-end strategy is paying off indeed.

It’s absolutely no secret that the consumer trends in China point to a future dominated less by higher-end iPhones and the like and more by more-affordable fare. Consider the Apple Inc. (AAPL) iPhone 5C, which was certainly a ploy for the teenage market, but was of greater long-term concern as a grab at the lucrative Chinese hardware market. Concomitant with cheaper hardware making headway into the untapped Chinese low-income market, lower-end app publishers like Sky-Mobi have reaped the benefits.

How Does Alibaba Play into This?

As the unquestioned leader in online retail in China, when Alibaba makes a move, the investing world watches. Their tacit approval of Sky-Mobi’s infrastructure is a huge boon indeed.

That infrastructure of Sky-Mobi’s is perhaps their greatest asset. After all, Sky-Mobi is unique in the software market in that they have an app store that has existed, well, since before “app stores” as we know them were even a thing. The company has been operating the Maopao online marketplace since 2006. This was of course pre-smartphone, with pre-installed games comprising the majority of their sales. It continues to be a major source of revenue for Sky-Mobi, and only in Q4 of 2013 did the company see smartphones make up the majority of their sales.

What the future holds for Sky-Mobi remains to be seen, but a lot of questions will be answered after their new benefactor IPOs this year, an IPO in which Alibaba expects to raise some $16 billion in capital.


DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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