Once a darling among growth investors, Alibaba Group (NYSE: BABA) has lost its past glory lately as growth has slowed to a historical low. To rekindle the momentum, Alibaba separated its empire into individual business units, giving each the independence to chart its own path forward.
Alibaba’s move could lead to the eventual separation of these business units, so it makes sense for investors to learn more about these individual businesses. One of the more promising business units is Cainiao. Here’s what you need to know.
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Unveiling Cainiao’s Ascendancy as a Global Logistics Authority
Alibaba is widely recognized as a dominant force in the Chinese ecommerce industry. However, what many investors may not realize is that Alibaba also leads the logistics sector in China and globally.
Established in 2013 to address the logistic needs of its parent company’s ecommerce operations, Cainiao has transcended its ecommerce origins to encompass almost every facet of logistics. Apart from aiding brands and merchants in tackling intricate omnichannel supply chain dilemmas in China, Cainiao manages a nationwide network of express delivery services, offering next-morning, next-day, and on-demand doorstep deliveries. It also operates China’s largest reverse logistics service, facilitating prompt and convenient returns for consumers.
Internationally, Cainiao is a pioneer in cross-border ecommerce logistics delivery, helping merchants on platforms like AliExpress, Tmall Global, and Lazada surmount their intricate cross-border logistics challenges. In the fiscal year ending March 31, 2023, Cainiao handled over 4 million daily average cross-border and international packages. In select regions such as Spain, France, and Poland, Cainiao also provides local door-to-door logistics solutions.
Another noteworthy aspect of Cainiao is Cainiao Post, which interconnects third-party-operated parcel collection stations and smart lockers nationwide with Cainiao’s logistics network. This service enhances Cainiao’s last-mile delivery capability, offering round-the-clock package delivery and pickup services.
In essence, Cainiao is gradually evolving into a behemoth poised to outgrow Alibaba’s origins.
The Bright Prospects for Cainiao’s Expansion
While most companies, including Alibaba’s flagship Tmall and Taobao, grapple with growth hurdles, Cainiao’s recent performance distinguished it from the pack. For perspective, Cainiao’s revenue surged by 27% in the first nine months of the fiscal year ending March 31, 2023, eclipsing Alibaba’s groupwide revenue growth rate of 9%.
Furthermore, Cainiao’s solid growth trajectory is likely to persist for compelling reasons. Leveraging its association with Alibaba (and other subsidiaries) can fuel Cainiao’s business expansion. Moreover, now that the company operates more independently, rather than under Alibaba Group’s umbrella, it can swiftly devise and implement strategies.
This newfound autonomy means the logistics firm could forge partnerships with merchants on alternative ecommerce platforms like Pinduoduo parent company PDD Holdings, which may not have been feasible in the past.
Another significant catalyst that could keep Cainiao engaged for years is the surge in cross-border ecommerce facilitated by platforms such as AliExpress, Temu, and Shein. The success of these platforms heavily hinges on their ability to provide users with dependable and swift delivery services. Leveraging its global logistics network and vast experience from operating in China, Cainiao is well-equipped to collaborate with these platforms to address their cross-border logistics needs.
In the long run, Cainiao aspires to fulfill consumer orders within 24 hours in China and within 72 hours globally. The closer it gets to realizing these objectives, the better positioned it is to sustain growth in the forthcoming years.
Implications for Investors
Alibaba has been a disillusioning investment for long-term stakeholders, with its stock price lingering around its initial public offering (IPO) level in 2014. Nonetheless, the tech giant is striving to revitalize its flagship ecommerce business while investing in nascent yet promising companies like Cainiao. These endeavors could yield fruit over time.
Although still in its infancy, Cainiao is already on a trajectory to establish itself as a global logistics powerhouse. If it continues to execute effectively, this venture could generate substantial value for shareholders. Investors should vigilantly monitor its performance in the years ahead.
