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Alibaba Raises Cainiao Stake, Accelerates New Retail Efforts

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Alibaba Group Holding Limited (BABA - Free Report) is increasing its stake in its logistics affiliate Cainiao Smart Logistics Network Limited with an $807 million (RMB5.3 billion) additional investment. The company also plans to invest $15.2 billion (RMB100 billion) in Cainiao over the next five years.

The Chinese e-commerce goliath noted in a press release that these investments are part of its bid to strengthen its global logistics network and implement its New Retail Strategy.

The company expects these moves to help it gain greater logistics efficiency, deliver improved consumer and merchant experience and lower costs. Alibaba aims to deliver orders within 24 hours in China and 72 hours anywhere in the world.

The transaction, which is expected to close in October next year, will raise Alibaba’s Ownership in Cainiao from 47% to 51%. Further, Alibaba will get an additional seat in Cainiao’s board, raising its representation to four seats out of seven. It will also consolidate financial results of Cainiao into its own books and report them as part of its core commerce segment, post the transaction.

We observe that shares of Alibaba have gained a massive 93.1% year to date, significantly outperforming the industry’s 45.2% rally.

Accelerating the Logistics Push

Having been around long enough to establish logistical relationships through Cainiao, and a solid core commerce model, Alibaba has been guzzling data that it is in an increasingly better position to use for improving customer experience and feeding its AI initiatives.

The new move is expected to help Alibaba do more on that apart from strengthening its global logistics infrastructure.

Alibaba Group Holding Limited Net Income (TTM)

New Retail Strategy in Focus

Alibaba, which gives tough competition to Amazon (AMZN - Free Report) , eBay (EBAY - Free Report) and JD.com (JD - Free Report) in China is working on the development of what it calls “New Retail” to bridge the gap between online and offline shopping using its big data capacity.

The new investments are expected to boost this innovation strategy by allowing it to increase R&D spending in logistics data technology, smart warehousing and delivery.

Alibaba currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wrapping Up

Alibaba’s strategy of gradually merging online and offline retail and strengthening logistics network indicates that it is thinking several years down the road.  This will not only reshape the retail landscape but also help it fend off competition, if it could manage a first mover advantage.

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