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Why Alibaba Is Putting $700 Million toward STO Express

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Mar. 25 2019, Updated 3:41 p.m. ET

Alibaba to own stakes in China’s top courier companies

Alibaba (BABA) is set to spend ~$700 million on a ~14% stake in STO Express, one of China’s largest courier companies. This news comes after the company’s purchase of a 10% stake last year in ZTO Express, a logistics leader in China. Alibaba also owns stakes in YTO Express and Best, other Chinese logistics leaders. Reuters reports that, according to Alibaba, the STO Express investment will go a long way in supporting its goal of shipping packages to customers across China within 24 hours and globally within 72 hours.

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Alibaba wants to capture more household budgets

Alibaba’s delivery system investments come just as it is expanding in the fresh food business to capture more household budgets. Last year, rival JD.com (JD) launched an express parcel delivery service in China to diversify its business.

To meet customers’ growing expectation for a quick turnaround and to create new revenue streams by offering third-party deliveries, e-commerce companies are investing in express delivery systems. Both Alibaba and Amazon (AMZN) offer delivery services to merchants on their marketplaces for a fee. An expanded and more reliable delivery system could help Alibaba capture a larger share of the third-party delivery market.

Alibaba is a profitable company

In fiscal 2019’s third quarter (ended in December), Alibaba made a profit of $4.8 billion. Amazon, eBay (EBAY), and Etsy (ETSY) reported profits of $3.0 billion, $763 million, and $41.3 million, respectively, in the quarter.

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