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From: Glenn Petersen6/5/2017 11:53:42 AM
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What Spat Between 2 of China’s Richest Men Means for Alibaba and SF Express

By Daniel Shane
Barron's
June 4, 2017 10:23 p.m. ET

What does a falling out between two of China’s richest men mean for investors in Alibaba ( BABA) and SF Express ( 002352.CN)?

Bloomberg reported late last week that Alibaba founder, and the Middle Kingdom’s richest businessman, Jack Ma had gone toe-to-toe with logistics billionaire Wang Wei over a dispute surrounding data sharing. SF Express is a major logistics partner of ecommerce giant Alibaba, and its services are used to deliver goods ordered online the length and breadth of China’s vast expanses.

However, the dispute relates to Cainiao Network, a vast data platform and Alibaba affiliate that at its core connects Alibaba merchants with delivery companies. The two are arguing about how much data each gets access to via the platform. This data is seen as vital as it provides crucial insights into the online shopping habits of Chinese consumers. Alibaba requested more data from SF Express which was declined. In retaliation, Alibaba removed SF Express as a delivery option from its site. Alibaba owns by far the biggest stake in Cainiao Network, but a number of logistics companies including SF Express are also small investors.

Smartkarma analyst Daniel Hellberg says the falling out reflects the changing nature of the relationship between Alibaba and its logistics partners. This is partly down to an investigation by the U.S. Securities and Exchange Commission into Cainaio Network’s accounting first announced last year.

This could eventually result in BABA being forced to consolidate CN's financial results; this threat is likely pushing CN to speed up its march to profitability.
This could mean that Cainaio Network needs to find better ways to monetize its data trove, Hellberg reckons:

CN has made it clear that it wishes to better monetize the massive amounts of data it collects on merchants, customers, and their shipping habits. CN could begin charging transportation service providers (like the express companies) a small fee for using CN-controlled data to optimize routes and plan for seasonal changes in demand. Payments would be based on the volume of data (or parcels) handled.
In terms of what this means for specific stocks, any move to push Cainaio Network into profitability quicker could be good news for earnings at Alibaba. Getting logistics companies to pony up for more data access will be bad news for them:

Whether the express companies end up paying higher fees to CN, or shouldering a greater portion of CN's capex needs, we believe the changes we have outlined will ultimately result in lower returns for the express companies. The changes should also reduce losses at CN, and that in turn should aid BABA's profitability, though the impact of these changes may not be noticeable given BABA's immense scale.
Alibaba shares are up 40% year-to-date. Shares in SF Express's holding company are up 30%.

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