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Stock debuts by technology companies have failed to inspire confidence this year, with two of the largest offerings falling below their listing prices within the first week. The next big deal could reignite interest in IPOs due to unique features.
Cainiao Smart Logistics Network Ltd. is nominally considered a technology company, primarily because it is a spin-off of Chinese e-commerce giant Alibaba Group Holding Ltd. is. But it’s no more technology than FedEx Corp. or ZTO Express Cayman Inc., which also use software and hardware to streamline the very manual task of package delivery.
However, this distinction may not matter. Cainiao’s proximity to the mothership allows the subsidiary to bask in the glory of technology, but at the same time is far enough away from Alibaba’s own macroeconomic challenges to warrant consideration by global investors. It will need all the enthusiasm it can get; Cainiao is expected to be the first of five group companies to seek an independent listing.
A reported $1 billion share sale in Hong Kong would see the debut fall below chip designer ARM Holdings Plc’s ($5.3 billion) listing this month and above grocery delivery giant Instacart’s ($660). million US dollars), both of which were highly anticipated and achieved major jumps on day one before falling below their retail prices. The latter’s collapse is a particular note of caution since the San Francisco-based company is also primarily a wheels-and-boots company like Cainiao.
One standout fact might catch your attention: the company is the second-largest contributor to Alibaba’s earnings growth, despite accounting for just 9.2% of consolidated revenue. The fact that it occupies a commanding position within the Alibaba empire makes the logistics company the perfect choice to lead the subsequent IPO parade. A successful stock sale would support the idea that betting on Team Baba is a safe move, while a tepid response would make it harder to push subsequent listings for the cloud and local services units.
Alibaba, as well as domestic competitors such as Tencent Holdings Ltd. and JD.Com Inc., are struggling to adapt to China’s myriad challenges. Consumer demand has slowed, exports have weakened and a range of structural economic problems – from rising youth unemployment to the real estate downturn – are dampening sentiment.
Still, Cainiao has done well to operate independently of Alibaba. Only 30% of sales come from the parent company, and the company is achieving a level of international expansion that the parent company’s e-commerce division has previously struggled to achieve. These two growth engines mean that the logistics industry may be the most immune of its subsidiaries to China’s domestic problems, while still benefiting from the lower costs of local technical talent and tapping into the still-vast consumer economy.
Although political tensions with the USA and the decentralization of supply chains will slow export growth in the long term, international purchasing trends act as a stimulus for cross-border trade. Shein, Temu from PDD Holdings Inc. and recently also the TikTok Shop from ByteDance Ltd. build relationships directly with foreign consumers who buy through apps that look and feel local. These products are then shipped from China. There are a few implications that play well into Cainiao’s hands.
While previously on US websites of Amazon.com Inc. or eBay Inc. or in stores of Walmart Inc. or Target Corp. was purchased, processing is now increasingly carried out by Chinese suppliers who have a closer relationship with the factories where the goods are manufactured. The result is that products are no longer purchased and shipped in bulk from third-party sellers or distributors, but rather in chunks, in a way that requires more flexible suppliers.
“Cainiao has a global, end-to-end, large-scale logistics network that leverages its proprietary technology to optimize efficiency in first-mile pickup, line-haul, overseas distribution and last-mile delivery,” boasts Alibaba. The company recently launched a five-day global delivery service and is aiming for a 72-hour delivery service in the coming years. Such speed will undoubtedly reduce Amazon.com’s competitive advantage and make global logistics companies increasingly important to commerce. And that’s without relying on Alibaba’s domestic e-commerce business or a recovery in China’s economy.
Although less than 10% of Alibaba Group’s revenue comes from abroad, Cainiao has already established global offices from Spain to Indonesia to Poland and has several locations in the United States. Since consumers, especially bargain hunters, tend to ignore politics, the logistics provider has built-in protection against the US-China Cold War in the technology sector. That alone is a good reason to sell itself as a non-tech company, even if it emerged from one of the country’s most dominant tech giants.
More from the Bloomberg opinion:
• Alibaba’s latest restructuring highlights its enigma: Tim Culpan
• Xi woos China’s tycoon skeptics. So Where’s Jack Ma?: Shuli Ren
• Postal Service strikes back on package delivery: Thomas Black
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. He was previously a technology reporter for Bloomberg News.
For more stories like this, visit Bloomberg.com/opinion
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