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Alibaba to Invest $693M in STO, Enhance Delivery Services

Zacks Equity Research

Alibaba Group Holding Limited BABA is leaving no stone unturned to bolster its presence in the retail sector with robust delivery networks.

Recently, the company announced plans to buy stake in a Shanghai-based parcel delivery firm, STO Express. Per the deal, Alibaba will invest an amount of $693.3 million or 4.66 billion yuan for buying a 49% stake in the new subsidiary, which is expected to control 29.9% of STO Express.

The latest move of the company is likely to enhance offline services and strengthen e-commerce business with faster delivery services. The deal will benefit China’s logistic industry as well as the rapidly growing retail sector.

Benefits

The move will aid Alibaba in bolstering its ‘New Retail’ strategy that focuses on integration of online e-commerce, along with offline retail by leveraging the comfort of e-commerce and advantages of mom & pop shops. This will also improve 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, the move will help Alibaba gain momentum in the retail and e-commerce market of China.

Additionally, the recent investment will help STO 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.

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 marks the company’s fourth investment in the delivery services sector. Prior toSTO Express, the company invested in ZTO, YTO Express Group and Best Inc.

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 $1.1 trillion in 2019 and $1.8 trillion within 2022, driven by growing mobile use.

This is in turn likely to boost the competitive position of Alibaba against its biggest rival in China, JD.com JD, which is also spending heavily on logistics.

Alibaba Group Holding Limited Price and Consensus

 

Alibaba Group Holding Limited Price and Consensus | Alibaba Group Holding Limited Quote

Zacks Rank & Stocks to Consider

Currently, Alibaba carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Expedia Group, Inc. EXPE and AMETEK, Inc. AME, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Expedia and AMETEK is projected to be 13.4% and 9.6%, respectively.

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