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Alibaba to Further Invest in Yunda, Boost Delivery Services

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Alibaba Group Holding Limited (BABA - Free Report) is leaving no stone unturned to bolster presence in the retail sector with robust delivery networks.

The company plans to increase stake in a China-based courier firm, YTO Express Group, per reports.

The company already owns about 10% stake in YTO. Reportedly, it now plans to increase that stake up to 30%.

YTO is China's third-largest express delivery firm, with a 14% market share in 2019. It already works with Alibaba’s logistics arm Cainiao.

This increse in stake is likely to strengthen Alibaba’s e-commerce business. Additionally, it will benefit China’s logistic industry and the rapidly growing retail sector.

Express Delivery Industry Growth

Express delivery refers to fast delivery of goods to customers through railway, road or air transport within 24-72 hours.

Express delivery facilities are used by different industries such as electronics and electrical, textile and clothing, automotive and transport, manufacturing, pharmaceuticals, financial services and e-commerce, along with individual customers for their personal work.

Per data from the State Post Bureau, China-based delivery firms handled a total of 63 billion parcels in 2019, up 24% year over year, while their revenues grew 23% year over year to 745 billion yuan ($104.95 billion).

Major players operating in the China express delivery market include ZTO Express, YTO Express, Best Inc., STO Express and SF Express.

The increase in stake in YTO Express will enable Alibaba to expand presence in China's fast-growing express delivery industry. In addition, this will likely help the company in bolstering the ‘New Retail’ strategy that focuses on integration of online e-commerce and offline retail by leveraging the comfort of e-commerce, along with advantages of mom & pop shops. This will also improve customer engagement and build an efficient retail ecosystem. Moreover, it will help Alibaba gain momentum in the retail and e-commerce market of China.

Notably, an improved delivery network bodes well for New Retail’s increasing demand for faster delivery and logistics services.

Focus on Logistics

Alibaba is pushing deeper into the logistics sector on account of improvement of delivery services. The move will reinforce its footprint in the logistics industry.

The company already has stakes in other large couriers, namely STO Express, ZTO, Yunda Holding Co Ltd and Best Inc.

All these endeavors will help the company build a more advanced delivery and logistics network to meet the growing demand in the retail and e-commerce sector of China.

According to a report from Forrester, the online retail market in China is anticipated to reach $1.8 trillion within 2022, driven by growing mobile use.

This in turn is likely to boost the competitive position of Alibaba against its biggest rival in China, JD.com (JD - Free Report) , which is also spending heavily on logistics.

Zacks Rank & Other Stocks to Consider

Currently, Alibaba carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the broader technology sector include Dropbox (DBX - Free Report) and Lam Research Corporation (LRCX - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate of Dropbox and Lam Research is pegged at 34.4% and 15.4%, respectively.

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