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Alibaba Group Buys 10% Stake in ZTO for $1.4 Billion

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ZTO Express is a profitable company

Alibaba (BABA) led a group of investors to buy an ~10.0% equity stake in Chinese delivery company ZTO Express (ZTO) for $1.4 billion. ZTO Express’s net profit rose 10.9% YoY (year-over-year) to $88.9 million in the first quarter. The company’s revenues grew 35.6% YoY to $565.1 million in the quarter.

The investment in ZTO Express is expected to expand the collaboration opportunity between Alibaba’s own logistics arm Cainiao and ZTO Express in ways that could result in lower labor costs and faster deliveries.

Alibaba’s costs and expenses rose 81.7% YoY to $8.4 billion in the first quarter, as shown in the chart above.

Online shopping demand express delivery

Demand for express delivery has increased in China and elsewhere as consumers shift to buying everyday items online. Amazon (AMZN), Walmart (WMT), and JD.com (JD) are among the other retailers investing heavily in building faster, more efficient, and more reliable delivery systems.

For companies like Alibaba and Amazon that also ship packages on behalf of third-party sellers on their marketplaces, investment in faster and more reliable delivery systems is also a way to unlock new revenue sources.

Expanding abroad

A deeper collaboration between Cainiao and ZTO Express could enhance Alibaba’s ability to deliver packages globally, which could result in more sales and contribute to a more diversified customer base for Alibaba. Alibaba currently generates the bulk of its revenues in China, but it’s working to expand abroad.

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