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Alibaba's Cainiao to Invest $1.5B in Logistics Business

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Alibaba Group Holding Limited’s (BABA - Free Report) logistics affiliate Cainiao Network recently said that Alibaba's Cainiao joint venture (JV) plans to invest $1.5 billion to build a new logistics center at the Hong Kong International Airport.

Per the deal, Cainiao Network will acquire a 51% stake in the joint venture, while others, namely China National Aviation Corp (Group) and courier YTO Express will each hold 35% and 14%, respectively.

The new Hong Kong logistic center that is expected to open in 2023 will cover an estimated gross floor area of 380,000 square meters. It will likely handle 1.7 million tons of cargo per annum at full capacity.

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.

Coming to share price, the company's shares have gained 20.7% on a year-to-date basis, underperforming the industry’s rally of 27.97%.

Accelerating the Logistics Push

Last September, the Chinese e-commerce giant Alibaba took control of Cainiao and announced that it will spend 100 billion yuan ($15 billion) over five years for building a global logistics network.

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

Cainiao already has three fulfillment centers in Hong Kong. It further plans to open logistic hubs in Dubai, Hangzhou, Kuala Lumpur, Liège in Belgium and Moscow.

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

Our Take

Timeliness has become one of the most important factors in the e-commerce space. As competition intensifies, Alibaba needs to up its game. With the integration of its own logistics service platforms, Alibaba will build a solid logistics platform for small and medium-sized Chinese businesses.

Zacks Rank & Stocks to Consider

Currently, Alibaba has a Zacks Rank #3 (Hold). Better-ranked stocks in the same industry include Groupon (GRPN - Free Report) , PetMed Express and Expedia (EXPE - Free Report) . While Groupon and Expedia sport a Zacks Rank #1 (Strong Buy), PetMed carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth for Groupon, PetMed and Expedia is currently projected to be 6.5%, 10% and 14.5%, respectively.

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