Alibaba ‘Not in a Hurry’ to Spin Off Logistics Unit
Alibaba Group is holding off the spinoff and initial public offering (IPO) of its logistics wing Cainiao, less than a year after the firm had anticipated the unit would command as much as $20 billion as a stand-alone business.
According to chairman Joe Tsai in an earnings call Wednesday, current market conditions are “just not in a state where we believe we can really truly reflect the true intrinsic value” of the business.
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Tsai also noted that the spinoff of Alibaba Group’s supermarket business, Hema, also known as Freshippo, is put on hold for the same reasons.
“Given the challenging market conditions, we’re not in a hurry on the timing of these transactions,” Tsai told analysts.
Cainiao’s “smart logistics network,” as the China-based e-commerce giant calls it, covers a large swath of logistics across first-mile pickup, line haul, customs clearance, sortation and last-mile parcel delivery for merchants both in China and abroad.
The company touts an on-time delivery rate of 98 percent, with the company saying it can track packages and analyze shipping trends in 224 counties and regions worldwide. Cainiao operates more than 100 warehouses and over 120 partners domestically.
According to Alibaba Group, Cainiao further expanded its premium five-day delivery service coverage, adding two more countries during the quarter. The order volume for the five-day service skyrocketed in the holiday quarter, which included the company’s lucrative 11.11 Global Shopping Festival hosted in November, achieving “robust triple-digit quarter-over-quarter growth.”
The move represents another departure from Alibaba Group’s initial plan to split into six separate units. The company first decided in November to cancel the IPO of its cloud intelligence business, which saw subdued year-over-year growth of 3 percent to close 2023.
With the pullback on the Cainiao and Hema spinoffs, the wider split appears to have evaporated, with the company seemingly feeling each unit may be better together than separate.
“In the last few months, [CEO Eddie Wu] and his team have taken a very close look at our core business, and we’ve come to the conclusion that right now, focusing on generating synergies within the companies in our group will be the best way to reflect the value of the entire Alibaba Group,” said Tsai.
Alibaba Group has formed special project teams to ensure synergy creation, according to Tsai, who said the firm believes prioritizing synergies to strengthen the core business is “the best value-maximizing path today.”
“Having said that, we continue to explore value creation through separate financings of our business units,” said Tsai.
For the fourth quarter, revenue from Cainiao grew 24 percent year-over-year to $4 billion, primarily driven by revenue from the unit’s cross-border fulfillment solutions. The division delivered outsized growth compared to Alibaba Group as a whole, which saw revenue increase 5 percent to $36.7 billion. Cainiao represents 11 percent of revenue across the Chinese tech titan.
Despite the challenging market conditions in an era where a global freight recession still persists, earnings before interest and taxes totaled $135 million—a positive swing from the $1.7 million loss in the quarter to end 2022.
According to Tsai, the increasing income reflected economies of scale that led to cost optimization and lower operating expenditures. But he indicated that spend in the branch would be kicking up in the coming quarters, namely increasing investments in cross-border logistics capabilities to support the growth of its recently launched “AE Choice” offering for e-commerce site AliExpress.
AliExpress saw over 60 percent order growth in the quarter, which the company attributed to the AE Choice model, which made up half the online store’s orders.
AE Choice offers a curated collection of thousands of products from the online retailer’s highest-rated and most-trusted sellers across categories such as consumer electronics, household goods, fashion, fitness, beauty, sports apparel and more. Choice products can offer free shipping, guaranteed 15-day delivery and free returns, and are considered for the program via several factors like product ratings, pricing, popularity, availability and timely delivery.
In October, Cainiao filed to list its stock in Hong Kong, aiming to raise $1 billion. The next month, Cainiao submitted additional materials on its finances and assets to the China Securities Regulatory Commission (CSRC), which accepted the proposal.
Under a spinoff, Alibaba Group would have remained a majority shareholder in Cainiao, holding over 50 percent of the company and retaining it as a subsidiary. The company currently owns nearly a 70 percent stake in Cainiao.
