Alibaba Group Holding Ltd (NYSE:BABA) announced that as a further step to implement its New Retail strategy, the company has agreed to make an additional investment of RMB5.3 billion (US$807 million) to increase its ownership of Cainiao Smart Logistics Network Limited (Cainiao), the logistics affiliate of Alibaba, to a majority stake of 51%. Alibaba also announced its intention to invest RMB100 billion (US$15.2 billion) over the next five years to further strengthen its global logistics network that aims to realize its mission of fulfilling orders in China within 24 hours and within 72 hours anywhere in the world. These investments are expected to enhance the overall logistics experience for consumers and merchants across the Alibaba ecosystem, as well as to enable greater efficiencies and lower costs in China’s logistics sector.
Upon completion of the transaction, Alibaba’s stake in Cainiao will increase from 47% to 51%, and Alibaba will gain one additional new seat on Cainiao’s board of directors, increasing its board representation to four out of seven seats.
The additional investment of RMB100 billion (US$15.2 billion) over the next five years will be used to increase R&D in logistics data technology, as well as for development of smart warehousing, smart delivery and global logistics infrastructure, all of which are core to building the global logistics network of the future.
“Our goal with this investment is to provide comprehensive, first-class experience for consumers globally,” said Daniel Zhang, CEO of Alibaba Group. “Our commitment to Cainiao and additional investment in logistics demonstrate Alibaba’s commitment to building the most-efficient logistic network in China and around the world. By enhancing the logistics capabilities within the Alibaba ecosystem and extending our investment in this sector, we are further enabling our New Retail strategy to bring online and offline retail into one seamless experience for shoppers. We will also continue to deepen our collaboration with various logistics partners to achieve this goal.”
This transaction is expected to be completed in October 2017, subject to satisfaction of customary closing conditions. Following the completion of the transaction, financial results of Cainiao will be consolidated under Alibaba Group and reported as part of the core commerce business segment.
Shares of Alibaba closed yesterday at $169.59, down $8.55 or -4.80%. BABA has a 1-year high of $180.87 and a 1-year low of $86.01. The stock’s 50-day moving average is $169.12 and its 200-day moving average is $137.80.
On the ratings front, Alibaba has been the subject of a number of recent research reports. In a report issued on September 21, Baird analyst Colin Sebastian reiterated a Buy rating on BABA, with a price target of $190, which represents a potential upside of 12% from where the stock is currently trading. On September 20, Jefferies’s Edison Lee reiterated a Buy rating on the stock and has a price target of $160.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Colin Sebastian and Edison Lee have a yearly average return of 25.5% and 5.3% respectively. Sebastian has a success rate of 76% and is ranked #13 out of 4653 analysts, while Lee has a success rate of 100% and is ranked #3189.
Overall, 13 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $192.5 which is 13.5% above where the stock closed yesterday.