A rip-snorter of a CNN bit on the decline of Alibaba Holdings (BABA), founder Jack Ma and indeed all of China’s mega tech platforms begins with some basic math and a question – just how much did Jack’s October 22 speech lightly criticising Chinese financial regulators ultimately cost?
It’s certainly possibly the implication – that Jack Ma give the most expensive speech in history – isn’t too far from the truth.
By their calculations CNN lands on the total figure of US$877 billion, including all Alibaba’s incremental, often bloody losses over the past three years.
Beyond that, the total market capitalisation of Chinese tech companies would have lost some US$3,000 billion dollars since the country’s brightest and unlikeliest entrepreneur was forthwith summoned to Beijing – before seeming to disappear from circulation in a nauseatingly familiar puff of reeducation.
Why bring it up now? Well there’s a new set of regulators in town and their need to crack the whip on a starved and cowed horse is far less urgent. In fact the wrath of the regulator has even subsided over the last few months. Scary in itself.
However, CNN reports that Ma’s fintech spinout of Alibaba Ant (Group) Financial, still somehow one of the two biggest companies founded by Ma, has just announced a share buyback which has conveniently shed some official looking light on the fintech firm’s current valuation.
According to the site, the company is now worth only US$230 billion.
For non-lovers of math, that seemingly significant number’s about 75% less than what it was worth around October 21, 2022.
Many believed, innocently or blindly, that the situation would be left there in deliberate awkward confusion. But nyet. It was just the first blow in a massive nationwide tech witch hunt – a crackdown campaign that rattled on randomly across the last few years, and found itself reaching out and throttling Chinese independent business-thinking far beyond the tech sector.
It says something unnerving about the cost of centralised control that three trillion US dollars is a simple fee for reigning in unbridled but unchastened success.
With Party Chairman, General Scretary of the Communist Party, Chairman of the PLA and Chinese military Xi Jinping securely in his historic third term as President, financial authorities have indeed suggested that the restructuring of the errant companies in their sights has been completed.
Since Ant Group was disassembled earlier this year and party apparatchiks placed in key positions across the board, Jack Ma has either deemed it safe enough – or had enough teeth removed – to start showing himself in public again.
But obviously, the call to order is clear: better not to look too big or appear too smart aside the Chinese state and its Communist Party rulers.
The lull could allow Ant Group to relaunch its IPO, canceled after Jack Ma’s criticism at the Bund Financial Summit in Shanghai.
It could also allow Alibaba to gradually, possibly recover its fantastic losses. But the road would be long and full of Communist Party pirates.
Beyond that, Chinese e-commerce companies are suffering from a context of heightened tensions at the global level, and the strengthening of the regulatory framework in markets such as the European Union aimed at better regulating, among other things, marketplace sellers.
For the time being, the latest announcements, in particular the payment of a final fine by Ant Group, seem rather to push the prices of the whole sector upwards.
Alibaba stock has been on a steady 7.95% rise for five days as of this writing. At the same time, competitor Tencent benefits from a price increase of 8%.
UBS believe Alibaba can at least meet higher than consensus forecasts for the June Quarter (reporting August 4), as Taobao/Tmall performed better during the 18.6 shopping festival than investors expected, and e-commerce platforms did not invest as much as the company signalled earlier
American depositary receipts (ADRs) of Alibaba Group jumped 8% during the Friday session after the nearly US$1 billion fine by Chinese regulators on Ant Holdings raised hopes that might be it for the endless summer of China’s crackdown on its too-big-to-succeed tech sector.
Ant, created by Alibaba’s founder, indicated that it would comply with the terms of the penalty and continue to enhance its consumer protection and compliance governance.
Chinese regulators also charged the firm with engaging in business activities that should have been conducted by banks or insurance firms.
Chinese officials have been targeting the tech sector in that country since 2020, when it forced Ant to scrap its plans for an initial public offering (IPO). It’s believed the crackdown was triggered by a speech by Ma in which he criticised China’s regulatory system.
Friday’s gains helped return Alibaba ADRs to positive territory for the year.
Chinese e-commerce platforms, in general, have remained more disciplined on spending and focused on Return On Investment (ROI), over the past 12 months, and this should be reflected in better profitability and cost discipline.
Taobao saw positive year-on-year growth in Gross Merchandise Value, users, orders and average order value (AoV) during 18.6 – it is not easy to grow users and AoV simultaneously – which suggests Taobao’s expansionist new strategy and management team are working pretty well.
In addition, UBS see valuation catalysts in Cloud with a private fund raising round likely within the next six months (then the IPO/distribution), and in Ant with the expected PBOC fine paving the way for an eventual IPO.
At $61 a share, Alibaba’s China commerce division represents ~2/3 of the current share price.
With Net Cash of $34/share, that suggests investors are getting all other businesses and listed investments for negative value – an unlikely scenario with several IPOs and distributions on the horizon.
Alibaba Group Holdings (BABA US): Q1 earnings preview
Crestone Global Best-in-Sector List/Share Price US$90.45 (-0.1%)
Consensus Recommendation: Buy/Price Target US$137