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Alibaba (BABA) Logistics Plays Can Strengthen Leadership in Chinese B2C E-Commerce Market, Says Top Analyst

Baird's Colin Sebastian, one of the top analysts on the Street is out cheering BABA's newest investment move: pouring $15.6 billion into Cainiao Logistics.


Yesterday morning, Alibaba Group Holding Ltd (NYSE:BABA) unveiled new investment plans: the Chinese e-commerce king will shell out $15.6 billion for its Cainiao Logistics segment. As such, BABA will strengthen a logistic network one of Wall Street’s best performing analysts already highlights as “smart.”

Top analyst Colin Sebastian at Baird sees BABA constructing a ‘New Logistics’ framework comparable to the company’s ‘New Retail’ omnichannel plans already in place. In other words, “New Logistics joins New Retail on [Alibaba’s] front burner,” asserts Sebastian.

In reaction, the analyst reiterates an Outperform rating on BABA stock with a $220 price target, which implies a close to 7% upside from current levels.

Alibaba intends to create a domestic logistics network with the power to distribute parcels throughout mainland China in the scope of 24 hours. Additionally, BABA’s goal is to expand internationally to back cross-border logistics. This play likely goes hand in hand with the Chinese Government’s “One Belt and One Road” initiative, wagers Sebastian.

The analyst believes, “Logistics strength creates B2C and B2B opportunities. Alibaba’s expanded smart logistics infrastructure, in conjunction with its New Retail online/offline sales strategy, should enable the company to further cement a dominant position in the Chinese B2C e-commerce market. Additionally, an expanded shipping network and smart logistics tools may enable the company to more aggressively pursue B2B opportunities.”

Consider that the company’s latest minority investment in Chinese courier service ZTO Express ought to offer better operating efficiency, continues Sebastian, broadening first-mile as well as last-mile pickup to delivery. Sebastian takes the Cainiao Logistics investment news in stride as a way for BABA to meaningfully step up improve Cainiao’s logistics management and tracking capacitity.

“Potential for significant cost efficiencies as Cainiao reaches national scale,” surmises the analyst, asserting: “Alibaba continues to enhance its retail offerings both online and offline through its New Retail initiatives, driving improved shopping experiences and greater operating efficiencies. We see increased Cainiao investments as the next layer of this strategy, as an expanded smart logistics infrastructure ultimately has the potential to drive greater cost efficiencies by directing high volumes of traffic across a common network.” Moving forward, BABA Chairman Jack Ma has indicated a game plan to pull total logistics expenses under 5% of China’s total GDP, a marked cut from the almost 15% of GDP seen two years ago.

Colin Sebastian has a very good TipRanks score with an 80% success rate with an impressive ranking among the top ten analysts on Wall Street: #10 out of 4,829 analysts. Sebastian yields 28.0% in his annual returns. When recommending BABA, Baird realizes 47.3% in average profits on the stock.

TipRanks reveals a strong bullish consensus circling this Chinese e-commerce king. All 15 analysts polled in the last 3 months rate a Buy on Alibaba stock. With a return potential of 21%, the stock’s consensus target price stands at $250.00.