This year’s hottest tech IPO may be a transportation firm

Cainiao Smart Logistics Network Ltd. is nominally considered a technology company, chiefly because it’s a spinoff from Chinese e-commerce giant Alibaba Group Holding Ltd. But it’s no more tech than FedEx Corp. or ZTO Express Cayman Inc., which also use software and hardware to optimize the very manual job of delivering packages. 

That distinction may not matter, though. Cainiao’s proximity to the mothership allows the affiliate to bathe in the technology glow, while being distant enough from Alibaba’s own macroeconomic challenges to warrant consideration by global investors. It’ll need all the buzz it can get; Cainiao is set to become the first of five group companies to pursue an independent equities-market listing. 

A reported $1 billion share sale in Hong Kong would put the debut below this month’s listing of chip designer ARM Holdings Plc ($5.3 billion) and above that of grocery-delivery provider Instacart ($660 million), both of which were widely anticipated and posted massive first-day jumps before dropping beneath their sales prices. The latter’s collapse serves as a particular note of caution given the San Francisco-based company is also, first and foremost, a wheels-and-boots business like Cainiao.

One standout fact may capture attention: it is the second-largest contributor to Alibaba’s profit growth, despite accounting for just 9.2% of group revenue. Punching above its weight within the Alibaba empire is what makes the logistics company the perfect choice to lead the subsequent parade of IPOs. A successful share sale would support the idea that betting on Team Baba is a safe move, while a tepid response would make it harder to promote subsequent listings for the cloud and local-services units.

Alibaba, like domestic peers including Tencent Holdings Ltd. and JD.Com Inc., is struggling to adjust to the myriad challenges in China.  Consumer demand has slowed, exports weakened, and an array of structural economic problems — from rising youth unemployment to a housing-sector downturn — is dampening sentiment.

Yet Cainiao has done well to move independently of Alibaba. Only 30% of sales come from the parent, and it’s achieving a level of international expansion that the parent company’s e-commerce arm has so far struggled to accomplish. These twin engines of growth mean that the logistics business may be most immune among affiliates to China’s domestic issues, while still leveraging the lower costs of local engineering talent and tapping into what remains a huge consumer economy.

Although political tensions with the US and the decentralization of supply chains will remain a long-term curb on export growth, international shopping trends act as a fillip for cross-border commerce. Shein, PDD Holdings Inc.’s Temu and more recently ByteDance Ltd.’s TikTok Shop are building relationships directly with foreign consumers, who are buying from apps that look and feel local. These products are then shipped out of China. There’s a few implications that play well into Cainiao’s hands.

Whereas previously purchases were made on US websites managed by Amazon.com Inc. or eBay Inc., or in shops run by Walmart Inc. or Target Corp., more are now being transacted with Chinese providers, which have a closer relationship with the factories where the goods are made. As a result, instead of products being bought and shipped in bulk by third-party retailers or distributors, they’re being sent piecemeal in way that requires more nimble providers.

“Cainiao has a 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,” Alibaba boasts. It recently launched a five-day global delivery service and is targeting 72-hours in coming years. Such speed will undoubtedly dent Amazon.com’s competitive advantage and make worldwide logistics companies ever more crucial to commerce. And it does so without relying on either Alibaba’s domestic e-commerce business or a rebound in the Chinese economy.

Despite less than 10% of Alibaba Group revenue coming from overseas, Cainiao has already set up global operations from Spain to Indonesia to Poland, with multiple sites in the US. Because consumers, especially those hunting for bargains, tend to ignore politics, the logistics provider has built-in protection against the US-China tech Cold War. That alone is a good enough reason to sell itself as a non-tech company, even if it is born from one of the nation’s most dominant technology giants.

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This story has been published from a wire agency feed without modifications to the text.

Updated: 29 Sep 2023, 07:48 AM IST