Cainiao’s unique position stirs interest amid tech IPO market uncertainty

Alibaba (NYSE:) Group Holding Ltd.’s spinoff, Cainiao Smart Logistics Network Ltd., is set to become the first of five group companies to pursue an independent equities-market listing, according to reports. Despite being nominally considered a technology company, Cainiao’s operations align more with logistics companies like FedEx Corp (NYSE:). or ZTO Express (NYSE:) Cayman Inc., as they also use software and hardware to optimize package delivery.

Cainiao’s unique positioning between tech and non-tech sectors may attract global investors’ attention amid a year of lackluster debuts among technology companies. Two of the largest offerings this year slid below their listing prices within the first week. A reported $1 billion share sale in Hong Kong would rank Cainiao’s debut below chip designer ARM Holdings (LON:) Plc’s $5.3 billion listing and above grocery-delivery provider Instacart’s $660 million offering, both of which experienced significant first-day jumps before falling below their sales prices.

Cainiao is the second-largest contributor to Alibaba’s profit growth, despite accounting for just 9.2% of group revenue. This impressive performance within the Alibaba empire could make the logistics company an attractive choice for investors looking at subsequent IPOs from the group.

While Alibaba and its domestic peers, including Tencent Holdings (OTC:) Ltd. and JD (NASDAQ:).Com Inc., grapple with various challenges in China such as slowing consumer demand, weakened exports, and structural economic problems, Cainiao has managed to move independently. Only 30% of its sales come from Alibaba, and it has achieved a level of international expansion that Alibaba’s e-commerce arm has so far struggled to accomplish.

Cainiao’s international operations span from Spain to Indonesia to Poland, with multiple sites in the US. This global presence offers some protection against the ongoing US-China tech Cold War. Furthermore, changes in international shopping trends favoring Chinese providers, like Shein and ByteDance Ltd.’s TikTok Shop, could play well into Cainiao’s hands. These trends have led to a shift from bulk purchases via US retailers or distributors to piecemeal orders requiring more nimble providers.

Alibaba has praised Cainiao for its “global end-to-end logistics network at scale that uses its proprietary technology to optimize efficiencies across first-mile pick-up, line haul, overseas distribution, and last-mile delivery.” The company recently launched a five-day global delivery service and aims to reduce this to 72 hours in the coming years. Such speed could challenge Amazon.com (NASDAQ:)’s competitive advantage and underscore the increasing importance of worldwide logistics companies to commerce.

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