Alibaba Moves To “Unlock Shareholder Value”

Alibaba (9988 HK, BABA US) announced after the close it will become a holding company comprised of the below six business groups in order to “unlock shareholder value and foster market competitiveness” in order to “capture market opportunities and stimulate growth”. The business group can raise funds and go public as they see fit.

Alibaba relisted in Hong Kong in November 2019 after the trade war weighed on the stock despite revenue increasing to $56B/RMB 376B in fiscal ended year 3/31/2019 from $37B/RMB 250B for the year ended 3/31/2018 versus $23B/RMB 158B in year ended 3/31/2017. After announcing its HK listing, Alibaba rallied 68%. The recent geopolitical environment has weighed on the stock despite revenue increasing from year ended 3/31/2020 $73B/RMB 509B to $105BB/RMB 717B in year ended 3/31/2021 and $132B/RMB 853B in fiscal year 2022. Management is providing a catalyst for investors to own shares. Analyst price targets are based on sum of the parts analysis with the twelve month price target $142 versus yesterday’s close of $86 (65% upside). Ultimately Alibaba is telling investors that they haven’t properly valued the company which is driven by the geopolitical overhang rather than the fundaments. The shareholder friendly move can be contrasted with competitors who appear focused on cutting prices. Hat tip to Alibaba management for thinking outside of the box though to their credit not the first time.

• Cloud Intelligence Group – Chairman and CEO Daniel Zhang will lead highlighting the importance of cloud and AI
• Taobao Tmall Commerce Group – Taobao (Consumer to Consumer) and Tmall (Business to Consumer) are Alibaba’s two domestic China e-commerce platforms serving retail and business clients. Trudy Dai
• Local Services Group – Ele.me is Alibaba’s restaurant/food delivery service
• Cainiao Smart Logistics – Cainiao is Alibaba’s delivery unit which had been kept separate due to the nature of the low margin nature of the business but was ultimately brought into the company.
• Global Digital Commerce Group – E-commerce units outside of China including SouthEast Asia focused Lazada, Turkey based Trendyol and international focused B2B Alibaba.com and international consumer focused AliExpress.
• Digital Media and Entertainment Group – Alibaba’s efforts to garner more eyeballs to its platform led to efforts such as online video company Youku which they bought back in 2016, movies under Alibaba Pictures (one of the great Mission Implossible movies was produced). The unit has struggled to become profitable over the years.

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