Scale and profitability, where is the rookie going to fly?

Cainiao is about to become the first Alibaba group to go public after the spin-off.

On September 26, Cainiao submitted a prospectus for listing in Hong Kong. According to the prospectus, Ali holds 69.54% of the shares in Cainiao.

Unlike Alibaba Entertainment, Alibaba Cloud, and other businesses that are far away from Alibaba's core e-commerce, Cainiao's business is inseparable from Taobao, Tmall, and international business. When Cainiao independently enters the capital market, it has to balance such a difficult problem: it must maintain a relationship with the group without independence, so as to ensure the stability of business units; It is also necessary to show the value of the rookie itself to the capital market.

The prospectus is a response to this question.

The prospectus first emphasized Cainiao's e-commerce genes. In fiscal 2021, 2022 and 2023, and the first quarter of fiscal 2024, Cainiao's top five customers accounted for 34.4%, 34.8%, 32.3% and 34.4% of its total revenue for each period, respectively, and revenue from its largest customer, Alibaba Group, accounted for 29.2%, 30.8%, 28.2% and 29.7% of its total revenue in each period, respectively.

In order to consolidate the partnership between Cainiao and its international business to promote international market expansion, the Group also reorganized Cainiao's holding structure and established a direct shareholding relationship between the International Digital Business Group and Cainiao.

While maintaining a tie-in relationship with Alibaba's e-commerce business, Cainiao wants to prove its value as a logistics company to the capital market. Coincidentally, shortly before the prospectus was filed, Cainiao embarked on a round of business expansion.

At the end of June, Cainiao launched its self-operated express delivery business, Cainiao Express. According to the official statement, Cainiao Express has been upgraded from the delivery business serving Tmall supermarkets to a national express delivery network, focusing on half-day delivery, same-day delivery, next-day delivery and door-to-door delivery.

It is not difficult to see that Cainiao's self-operated express is targeted by JD Express and SF. Alibaba's consistent idea of doing business is to make a platform, a game of chess, and Cainiao is also a product of this idea, but the disadvantage of the platform is insufficient control, even if Cainiao and Tee Yida have an additional layer of equity cooperation.

On the eve of listing, Cainiao needs to expand its business volume, and it has become a new choice for Cainiao to grab market share in person. According to Times Finance reports, some rookie sites offer a salary of 8,000-13,000 yuan to recruit couriers to cope with the new increase in pick-up work.

Another big battleground for rookies is international business. Overseas e-commerce is standing in front of huge opportunities: according to Frost & Sullivan's data and forecast, the GMV of China's B2C export cross-border e-commerce market will reach 3.13 trillion yuan in 2022 and will reach 4.65 trillion yuan by 2025, with a three-year compound growth rate of 14.1%. This is much higher than the growth rate of domestic e-commerce.

The opportunity of e-commerce is also the opportunity of logistics, and rookies naturally do not want to let go. On the same day that it announced its self-operation, Cainiao also announced the launch of "Global Five-Day Delivery" in conjunction with AliExpress, and will also build in-depth construction in key overseas markets such as Europe, North America, and Southeast Asia to build overseas local logistics.

Of course, expansion means investment. According to the prospectus, in fiscal 2021, 2022 and 2023, Cainiao lost 2.015 billion yuan, 22.86 billion yuan and 2.801 billion yuan respectively, and turned a profit in the second quarter of this year, with a quarterly profit of 288 million yuan.

Increasing investment means that the profitability of subsequent rookies cannot be guaranteed, and for rookies who have just become independent, it is more important to independently go to the capital market and get more financing. And when it successfully moves into the capital markets, it will respond to market concerns around profitability.

A

Cainiao's business can be divided into domestic logistics business, international logistics business, and technology service related business. The latter mainly includes Cainiao Station, Cainiao App, logistics solutions and logistics infrastructure services.

In the second quarter of this year, Cainiao's revenue was 23.164 billion yuan, a year-on-year increase of 34%. Ali previously explained in its earnings report that the growth was mainly contributed by the growth of international logistics and domestic logistics revenue. At the same time, Cainiao turned a year-on-year profit in the second quarter.

Since its establishment in 2013, Cainiao has been relying on the group's blood transfusion, and the prospectus also shows that Cainiao has lost a total of 7 billion yuan in the past three fiscal years, and just the quarter before the prospectus was submitted, Cainiao finally achieved a single-quarter profit.

How is profitability achieved?

From the perspective of prospectus, the profit is mainly due to the improvement of operating efficiency. In the second quarter, Cainiao's revenue increased by 34% year-on-year, operating costs increased by 28.9% year-on-year, and gross margin increased from 10.6% to 13.7%.

Compared with other logistics companies, JD Logistics' revenue in the second quarter of 2023 was 41 billion yuan, an increase of 31.2% from 31.2 billion yuan in the same period of the previous year, and the profit for the period was 508 million yuan and the adjusted profit was 826 million yuan.

Compared with Cainiao, JD.com, which has developed self-operated logistics early, has a higher proportion of external customers. In the first half of 2023, JD.com's logistics revenue was 77.8 billion yuan, a year-on-year increase of 32.6%, of which external customer revenue was 53.9 billion yuan, a year-on-year increase of 57.7%, accounting for about 70% for four consecutive quarters.

In the first half of this year, SF's revenue was 124.366 billion yuan, down 4.38% year-on-year; The net profit attributable to shareholders of the listed company was 4.176 billion yuan, and the net profit after deduction was 3.705 billion yuan, a year-on-year increase of 72.51%. SF's profit growth was mainly due to the sale of Fengwang to Jitu, which reduced the performance burden.

Before Cainiao, Jitu filed a prospectus in June this year. According to the prospectus, Jitu's revenue in 2020, 2021 and 2022 was US$1.535 billion, US$4.852 billion and US$7.267 billion, respectively, and the adjusted net loss was US$476 million, US$910 million and US$800 million, respectively.

On the whole, there is still a big gap between the volume of Cainiao and JD.com and SF, the growth rate is acceptable, and the profitability is higher than that of Jitu that is still in the subsidy period, but there is also a gap compared with the relatively mature JD.com and SF.

The second quarter was Cainiao's first profit, and its subsequent profitability remains to be seen. The expansion of self-operated business and international business will obviously put a lot of pressure on Cainiao's profitability in the future.

B

In fact, Cainiao Express is not the first time that Cainiao has come to an end. In 2019, Danniao Express was established by Cainiao and a number of regional landing distribution companies, the initial service objects were mainly Tmall Supermarket and Tmall International, and the self-operated brand Cainiao Express was combined with the post station network resources, warehousing resources and transit transportation resources in the Cainiao system on the basis of Danniao, and upgraded to a national express open to the outside world.

Cainiao's expansion of self-operation is obviously related to the background of Ali's split-six.

After the split, the six major groups are independent of each other, and the cooperation between Cainiao and Taotian and Ali International is also equivalent to the company-to-company cooperation, and it is also feasible for Cainiao to open its express delivery capacity to other merchants or individual customers.

For Cainiao, the more important significance of expanding self-operated business is to increase the company's imagination and valuation space.

Shuai Yong, vice president of Cainiao Group and general manager of the domestic supply chain business department, pointed out in a previous interview with the media that Cainiao Express is positioned as a cost-effective self-operated express service, benchmarking the high-quality express services of SF and JD Logistics, but it will have more advantages in price.

According to Times Finance reports, Cainiao has also opened and collected in some cities in Zhejiang, Jiangsu, Guangdong, Fujian, Beijing, Hubei and other provinces and cities. As of August, Cainiao Express has opened collection in 59 cities across the country, of which 29 cities are covered.

However, compared with mature express delivery companies such as JD.com and SF, Cainiao's self-operated system construction is still relatively backward. According to the statistics of the Orient Securities report, the Cainiao Express network resources are still relatively small, with only 50,000+ couriers (the access system is generally more than 200,000), 5,000+ terminal sites (the access department is generally more than 30,000), and nearly 60 distribution centers (the access system is generally more than 70).

This means that Cainiao has to complete the two major systems of couriers and terminal sites, which require a lot of input costs, and in the short term, the production capacity of Cainiao Express will also be limited, and the task of Cainiao is not easy to challenge mature express delivery companies.

As a latecomer, rookies have to subsidize the market if they want to get it. And its positioning is also the same, that is, it has a price advantage over JD.com and SF, so that Cainiao's operating costs will increase.

From the perspective of the industry, the price war of express companies is still not over. According to the August revenue report released by express delivery companies, the business completion volume of Yunda, Yuantong and Shentong has increased, but the revenue per ticket has declined significantly. Among them, Yunda's single ticket revenue was 2.17 yuan, a year-on-year decrease of 17.18%.

The rookie who decided to do express delivery in person obviously could not stay out of this price war.

C

In the international market, Cainiao also faces a lot of competitive pressure. Overseas, rookie is facing its archrival, the polar rabbit.

The overseas market is the base camp of Jitu. The same as in China, one of J&T's strategies overseas is also low price, with the advantage of low price, J&T has won many orders from the platform. At the beginning of 2022, J&T International announced that it officially docked with the Amazon platform to undertake logistics services, and planned to open sites in the United Arab Emirates, Mexico, the United States, Canada, the United Kingdom, Germany, France, Italy, Spain, etc.

Temu's expansion has also led to the growth of Jitu's overseas business, which has a deep relationship with Pinduoduo. Later, it was reported that about 50% of the packages sent overseas by Temu were carried by Jitu, and the price charged by Jitu to Temu was about 40 yuan / kg (about equal to the delivery cost at the end of the United States), which was lower than the market quotation of 80-100 yuan / kg.

The development of Chinese cross-border e-commerce such as Shopee, TikTok, and SHEIN has also contributed to the growth of Jitu.

In June this year, SF and J&T Global entered into equity cooperation negotiations, and SF plans to invest in J&T Global with a proportion of 1% to 2% to strengthen the cooperative relationship between the two enterprises, and the competitiveness of the two cooperation is obviously higher than before.

From the performance point of view, Jitu's revenue is not as good as Cainiao, but the loss is much higher than Cainiao. On the one hand, this proves Cainiao's profitability and operational efficiency, but it also shows that Jitu is still in the expansion period and is using subsidies in exchange for market share, which shows the competitive pressure Cainiao is facing.

International business is one of Cainiao's revenue pillars, and in fiscal 2023, Cainiao's international logistics revenue, which is dominated by cross-border express and international supply chain service service fees, accounted for 47.4%, higher than domestic logistics service revenue of 46.2%.

Cainiao's advantage lies in the logistics network it has accumulated for many years. According to Cainiao's previously released data, as of the end of June this year, Cainiao has a large last-mile network of more than 4,400 distribution stations and more than 170,000 Cainiao stations around the world, and in Cainiao's distribution system, the express delivery time between China and major international destinations has been shortened from 30 to 60 days to 10 days or less.

At the end of September, AliExpress and Cainiao launched the "Global 5-Day Delivery" international express express products, and the first batch landed in 5 countries including the UK, Spain, the Netherlands, Belgium and South Korea.

"In the first half of this year, the growth rate of the entire B2C cross-border e-commerce exceeded 20%." Ding Hongwei, vice president of Cainiao Group and general manager of the international express business department, said in an interview with the media that slow timeliness, high prices and instability are still the main challenges facing cross-border e-commerce logistics. Obviously, rookie wants to compete for the market with faster timeliness.

In the past 10 years, Cainiao has been relying on Ali Group for blood transfusion, but at the same time for Taobao Tmall's e-commerce development to provide logistics support, listing is only the first step of Cainiao's independence, in the face of domestic and international logistics industry competition, especially in the international battlefield, Cainiao also needs to use more drastic means.