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Alibaba Leads Investment in ZTO, Enhances Delivery Services

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Alibaba Group Holding Limited (BABA - Free Report) is leaving no stone unturned to bolster its presence in the retail sector with robust delivery networks. Recently, the company has led a consortium of investors to invest $1.38 billion in a China-based express delivery company, ZTO Express (Cayman) Inc. (ZTO - Free Report) .

The consortium includes Alibaba, Cainiao Smart Logistics Network and other undisclosed investors. Per the deal, 10% of ZTO will be acquired by the investors in exchange for the investment.

The latest move of the company is likely to enhance its offline services and strengthen e-commerce business with faster delivery services.

Coming to the price performance, shares of Alibaba have returned 61.7% over a year, outperforming the industry’s rally of 45.2%.



Deal Rationale
    
The deal will benefit China’s logistic industry as well as the rapidly growing retail sector.

The recent investment will help Cainiao and ZTO to develop smart delivery solutions and ways for warehouse management. Further, by collaborating, these companies are likely to enhance their pickup and delivery services as well as cross border logistics.

These moves will aid Alibaba in bolstering its ‘New Retail’ strategy which focuses on integration of online e-commerce and offline retail by leveraging the comfort of e-commerce and advantages of mom & pop shops. This will also improve the customer engagement and build an efficient retail ecosystem.

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

Focus on Logistics

Alibaba’s focus on improvement of its delivery services is pushing it deeper into the logistics sector. The latest deal reinforces its footprint in the logistics industry.

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

Further, Alibaba acquired a majority stake in Cainiao last year in an effort to expand its logistics network.
All these endeavors will help the company in building a more advanced delivery and logistics network to meet the growing demand in retail and e-commerce sector of China.

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

Per the data from Statista, revenues in Chinese e-commerce market are expected to reach $917.7 million in 2022 by growing at a CAGR of 12% between 2018 and 2022.

Additionally, this 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 & a Stock to Consider

Currently, Alibaba carries a Zacks Rank #3 (Hold).

A better-ranked stock that can be considered in the retail-wholesale sector is Amazon (AMZN - Free Report) , which flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Amazon is currently pegged at 30.2%.

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