Amazon China May Be Eyeing NetEase Merger

Amazon could be looking into merging its China unit with eCommerce platform Kaola, which is owned by NetEase, according to a report by CNBC.

Amazon does not have a significant market share in the country, and Anthony Chukumba, managing director of Chicago-based firm Loop Capital, said the move was probably “too little too late.”

“Amazon has been in China for 15 years, it’s not like they just got there last year,” he said. “So if it hasn’t worked in 15 years, I am not really sure that merging with Kaola is going to make all that much of a difference.”

Chukumba said Amazon’s 1 percent market share in the company shows that it’s “a has-been” and “kind of a never-was.” Companies like Alibaba and JD.com dominate the Chinese market.

Despite the lack of Amazon’s berth in the country, Chukumba said the move makes sense in a way, although it wouldn’t come close to “leveling the playing field” with other companies in the country.

“Certainly this acquisition will help from a scale perspective, it also should provide them some local expertise and local relationships, particularly with the Chinese government, which I think would be a good thing,” he said.

The best case scenario, he said, would be single-digit percentage gains in market share. There’s the possibility that Amazon tried for bigger mergers but was turned away, he said.

“I just don’t think the big boys would have them, I’m not really sure what it does for the big boys at this point,” Chukumba said.

However, he did admit that the company doesn’t have much to lose, and that CEO Jeff Bezos’s philosophy has always been about growth.

“I don’t really think that the company and, quite frankly, investors are ascribing much of the value of Amazon to what they’re doing in China. So, to some extent, they just have nothing to lose,” he said. “I think that, if you are Jeff Bezos, your goal is world domination. The larger your total addressable market at the end of the day, the larger your potential valuation, so I don’t think that Amazon can just say, you know, ‘We are just going to be a North American-centric business.’”

Both companies declined to comment on the news.