Alibaba is investing in ZTO, improving delivery services

Alibaba Group Holding Limited BABA is committed to strengthening its presence in the retail sector with robust delivery networks. The company recently led a consortium of investors that invested $1.38 billion in Chinese express delivery company ZTO Express (Cayman) Inc. ZTO.

The consortium includes Alibaba, Cainiao Smart Logistics Network and other undisclosed investors. According to the agreement, in exchange for the investment, investors will take over 10% of shares in ZTO.

The company’s latest move is likely to improve offline services and strengthen its e-commerce business with faster delivery services.

On a price-wise basis, Alibaba shares are up 61.7% for the year, outpacing the industry’s gain of 45.2%.

Justification of the transaction

The transaction will benefit the Chinese logistics industry as well as the rapidly growing retail sector.

The recent investment will help Cainiao and ZTO develop smart delivery solutions and warehouse management. Moreover, through cooperation, these companies will likely improve their pickup and delivery services as well as cross-border logistics.

These moves will help Alibaba strengthen its “New Retail” strategy, which focuses on integrating online e-commerce and offline retail by leveraging the convenience of e-commerce and the advantages of mom-and-pop stores. This will also improve customer engagement and build an effective retail ecosystem.

Therefore, the improved delivery network bodes well for New Retail’s growing demand for faster delivery and logistics services. Moreover, it will help Alibaba gain momentum in China’s retail and e-commerce market.

Alibaba Group Holding Limited Revenue (TTM)

Alibaba Group Holding Limited Revenue (TTM) | Alibaba Group Holding Limited Quote

Focus on logistics

Alibaba’s focus on improving delivery services is pushing it deeper into the logistics sector. The latest transaction strengthens its presence in the logistics industry.

This investment is the company’s third investment in the delivery services sector. Before ZTO, the company invested in YTO Express Group and Best Inc.

Moreover, Alibaba acquired a majority stake in Cainiao last year in an attempt to expand its logistics network.
All these efforts will help the company build a more advanced delivery and logistics network to meet the growing demand in China’s retail and e-commerce sectors.

According to a Forrester report, China’s online retail market is expected to reach $1 trillion in 2018 and reach $1.7 trillion by 2022, driven by the growing use of mobile devices.

According to Statista data, revenue in the Chinese e-commerce market is expected to reach USD 917.7 million in 2022, growing at a CAGR of 12% from 2018 to 2022.

Additionally, it will likely strengthen Alibaba’s competitive position against its biggest rival in China, JD.com JD, which also spends heavily on logistics.

Zacks Rank and Stocks to Consider

Alibaba is currently sporting a Zacks Rank of #3 (Hold).

A better-rated stock to include in the Retail and Wholesale sector is Amazon AMZN, boasting a Zacks Rank #1 (Strong Buy). You can see complete list of today’s Zacks #1 ranked stocks here.

Amazon’s long-term earnings growth rate is currently estimated at 30.2%.

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