Alibaba’s delivery affiliate will continue to prioritize growth over profits as it builds its logistics network to support Alibaba’s global expansion, reports Bloomberg. Cainiao Smart Logistics Network CEO Judy Tong told partners at a conference in Hangzhou that the company needs the support of investors who will endorse its model of incurring losses to build scale.
Want investors who don’t mind losses
Cainiao need funds to continue its investments into its distribution network.
“I definitely need more financing because we’re making such a big platform,” Tong said. “But we’re being picky with investors. We don’t want those who tell us every day ‘you must make money tomorrow.’”
Tong said that a few months ago, she talked with Alibaba Executive Chairman Jack Ma about making the company profitable.
Ma said, “Don’t you dare think like that, because if you do you’ll definitely make Cainiao small.”
Unlike Amazon.com and JD.com, Alibaba chose to farm out its distribution instead of owning its own transport network. According to Alibaba executives, this less capital-intensive model can be scaled up to meet demand, says Bloomberg. In 2014, the e-commerce giant came up with a plan to invest 10 billion yuan in training and logistics to push its e-commerce model out to 10,000 villages. According to estimates from Jefferies, it’s about a sixth of the country’s rural settlements.
Alibaba and Cainiao: a complex set-up
Cainiao’s consistent losses have also triggered a U.S. investigation as regulators ask why Alibaba, the company’s largest shareholder, can’t fully fold the smaller company into its own results. To this, Tong said that both companies have provided data to prove they have followed the rules.
In 2015, Cainiao reported sales of almost 3.1 billion yuan but posted a net loss of 617 million yuan. In its books in the same year, Alibaba recorded $46 million as its part of the loss but also a $128 million gain on investments into Cainiao and other entities, says Bloomberg.
Alibaba and a small group of initial backers founded Cainiao in 2013. Along with supporting Alibaba’s expansion, the logistics company has been building distribution hubs around China’s biggest cities and in remote provinces. On a daily basis, the company handles around 42 million packages or around 70% the country’s deliveries, notes Bloomberg.
At 9:53 a.m. Eastern, Alibaba shares were up 0.28% at $104.85. Year to date, the stock is up more than 28%, while in the last year, it is up almost 60%.