Once a darling among growth investors, Alibaba Group (BABA +0.98%) 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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Cainiao is a low-profile global logistics player
Alibaba is well-known for being a leader in the Chinese e-commerce industry. However, not many investors know that it is also a leading player in the logistics industry in China and globally.
Founded in 2013 to address the logistic needs of its parent's e-commerce business, Cainiao has evolved beyond its e-commerce roots to cover almost every aspect of logistics. Besides helping brands and merchants tackle complex omnichannel supply chain issues in China, Cainiao operates a national network of express delivery services, providing next-morning, next-day, and on-demand doorstep services. It also runs China's largest reverse logistics service, helping consumers return their goods conveniently and quickly.
Beyond China, Cainiao is a leader in cross-border e-commerce logistics delivery, helping merchants on international platforms such as AliExpress, Tmall Global, and Lazada solve their complex cross-border logistics needs. In the fiscal year that ended March 31, 2023, Cainiao was responsible for over 4 million daily average cross-border and international packages. In certain parts of the world, such as Spain, France, and Poland, Cainiao also offers local door-to-door logistics solutions.
Another essential aspect of Cainiao worth mentioning is Cainiao Post, which connects third-party-operated parcel collection stations and smart lockers nationwide to Cainiao's logistics network. This service helps Cainiao improve its last-mile delivery, providing package delivery and pickup services 24 hours a day, seven days a week.
In short, Cainiao is slowly becoming a giant that is well positioned to grow beyond Alibaba's roots.
NYSE: BABA
Key Data Points
Cainiao has ample opportunity to grow
While most companies (including Alibaba's flagship Tmall and Taobao) faced challenges growing, Cainiao's recent performance separated it from the crowd. For perspective, Cainiao's revenue grew by 27% in the first nine months of the fiscal year ending March 31, 2023, far ahead of Alibaba's groupwide revenue growth rate of 9%.
Better still, there are good reasons to expect Cainiao's solid growth trajectory to continue. As a start, Cainiao can continue to leverage its relationship with Alibaba (and its other subsidiaries) to grow its business. Besides, as the company is now operating more independently, as opposed to being managed by Alibaba Group, it can set its strategies and execute them quickly.
This also means that the logistics company could now work with merchants on another e-commerce platform -- such as Pinduoduo parent PDD Holdings -- which it couldn't or was not comfortable doing business with in the past.
Another significant tailwind that could keep Cainiao busy for years is the rise of cross-border e-commerce thanks to players like AliExpress, Temu, and Shein. In many ways, the success of these players depends on how well they can delight their users with reliable and fast delivery services. Cainiao, with its global logistics network and the vast experience gained over the years operating in China, is well-positioned to cooperate with these platforms to solve their cross-border logistics requirements.
In the long run, Cainiao aims to fulfill consumer orders within 24 hours in China and 72 hours anywhere else globally. The closer it comes to achieving these goals, the better it can sustain growth in the coming years.
What it means for investors
Alibaba has been a disappointing investment for its long-term investors, with its share price hovering near its initial public offering (IPO) price in 2014. Still, the tech giant is working to turn around its flagship e-commerce business while investing in younger but up-and-coming companies like Cainiao. These efforts could bear fruit in the long run.
While still in the early days, Cainiao is already on its way to becoming a global logistics powerhouse. If it continues to execute well, this business could create enormous value for shareholders. Investors should closely monitor its performance in the next few years.
