- Yesterday, Alibaba Group announced that it would increase its authorized share repurchases to US$25 billion from US$15 billion previously, to be implemented over the coming two years.
- The announcement saw Alibaba’s stock rally by over 40% since last week, lifting shares of other Chinese tech firms with it and comes in the wake of top Chinese economic minister Liu He reassuring investors that Beijing would soon finish its “rectification” of the country’s tech giants.
Chinese e-commerce juggernaut Alibaba Group (+7.35%) is serving its patriotic duty in a US$25 billion share buyback plan that looks to shore up investor confidence after slowing growth and a crackdown in the tech sector sent the company’s shares to a multiyear low.
Since Chinese authorities canceled Alibaba Group’s IPO of Ant Group in November 2020, shares in the e-commerce company have lost around 65% of their value.
Yesterday, Alibaba Group announced that it would increase its authorized share repurchases to US$25 billion from US$15 billion previously, to be implemented over the coming two years.
So far Alibaba Group has repurchased US$9.2 billion worth of stock as part of the program.
The announcement saw Alibaba’s stock rally by over 40% since last week, lifting shares of other Chinese tech firms with it and comes in the wake of top Chinese economic minister Liu He reassuring investors that Beijing would soon finish its “rectification” of the country’s tech giants.
Alibaba is currently trading at a forward price-to-earnings multiple of just 12.2, with cash on its balance sheet representing over a quarter of its market value, according to research group Bernstein.
As tech companies go, Alibaba and other Chinese tech giants are a lot cheaper than equivalents in the U.S. but they also face unique challenges that other their American counterparts don’t have to deal with.
Opaque and unpredictable regulatory crackdowns, some of which have the ability to upend entire business models as well as the potential for delisting from New York’s stock exchanges have meant that investing in Chinese tech firms is not for the fainthearted.
While the relatively cheap share price of Alibaba Group has lured in legendary value investors, including Berkshire Hathaway’s Vice Chairman Charlie Munger, the rest of Wall Street has not yet been convinced, nor have global investors.
Since the start of the year, over US$6 billion in flows have been marked moving out of Chinese equities, according to data from Hong Kong and Chinese exchanges.
Alibaba, once a reliable earner, reported its slowest quarterly sales growth in the fourth quarter of 2021 since its IPO in 2014, suggesting that the breakneck pace of growth for the company may be in rearview mirror.
Confidence is a tricky thing to manage, it takes years to build, but only minutes to shake and it could be sometime before investors return in sufficiently large numbers to China’s growth story.
Regulatory crackdowns, threats of U.S. delisting and geopolitical instability as well as a zero-Covid policy are all weighing down the Chinese economy and driving sentiment negative.
Whether these current measures to lighten the crackdown on Chinese tech are a momentary stopgap by Beijing ahead of a major leadership conclave, or whether they will prove durable remains to be seen.
Even then, Alibaba continues to face competition from other e-commerce groups, including Pinduoduo (+18.85%) and JD.com (+1.02%) and newer platforms including Douyin, the sister app to TikTok which lets influencers sell products through streaming content.
