Alibaba is getting serious about logistics after it agreed to invest RMB 5.3 billion ($807 million) in order to take majority ownership in subsidiary company Cainiao
It is currently not profitable, but investors see its close relationship with Alibaba as the ticket to developing a lucrative business. Alibaba said the goal is to enable e-commerce services in China to fulfill customer orders within 24 hours, and those overseas within 72 hours, and Cainiao is a core part of that. Indeed, Alibaba said it plans to invest over $15 billion in the next five years to develop its global logistics network.
Today’s investment is likely to go through next month and it will take Alibaba’s ownership from 47 percent to 51 percent, which in theory gives Cainiao a valuation of RMB 132.5 billion ($19.9 billion). But that’s theoretical because Alibaba’s motivation is likely to have been influenced by other matters.
The SEC last year launched a probe
into Alibaba’s accounting systems, and whether it has violated federal securities laws. The firm’s accounting of Cainiao was one component to that, since it only listed some financial information as a minority equity holder. Now, as a majority stakeholder following this deal, it is likely that Alibaba’s transparency over the company will increase going foward. Beyond more information for regulators, it may also appease shareholders curious to learn more about a company Alibaba is helping to bankroll.