Ali's $25 billion sky-high buyback? If you think too much, beware of falling into a trap.
Recently, the largest domestic e-commerce giant announced the expansion of the scale of share repurchases, from $15 billion to $25 billion, which was blown up by many media, some deduced the concept of the largest repurchase scale in the history of Chinese stocks, and some orchestrated the statement that there are three positive signals behind Alibaba's launch of large-scale repurchases.
Generally speaking, the repurchase is indeed a positive, which has two reasons, on the one hand, it reflects the confidence of the listed company in the future growth, and only when it feels undervalued, it may introduce a repurchase policy; on the other hand, if the stock is written off after the repurchase, then you hold the same stock, and the equity obtained after the repurchase is also increased than before.
Unsurprisingly, after some speculation, Ali's U.S. stocks rose 11% overnight. But I suspect that many people are probably misguided. On the surface, $25 billion is indeed very powerful, equivalent to about 160 billion yuan, which is close to one-tenth of Ali's market value. But for investors, we should also be cautious, Ali's move has been artificially amplified by some people, and the trap component is still relatively large.
First, Ali's $25 billion buyback is nothing new at all, and this move can be traced back to 2017. In May of that year, Ma announced the launch of a two-year, $6 billion share repurchase program.
After the failure of Ant Group's listing, in order to cope with various bad news, in December 2020, Ali decided to increase the repurchase size from $6 billion to $10 billion, which is valid until the end of 2022.
However, the results were not satisfactory, and in August last year, Ali had to announce the expansion of buybacks from $10 billion to $15 billion. The current $25 billion buyback program is added to $15 billion.
In other words, Ali's big $25 billion project has been in progress for almost five years.
As of March 18, a total of 56.2 million American Depositary Shares were repurchased, for a total amount of approximately $9.2 billion. As for the actual effect, everyone has seen that in 2017, Ali's highest market value was nearly $500 billion, and at the worst time of the technology stock bubble in 2020, the water rose to $800 billion, and then there was no more, the stock price fell and fell endlessly, falling by nearly 70% in the past year and a half, and the lowest market value was less than $200 billion.
Whether Ali is underrated now, I can't say, but it is not unreasonable for it to get to this point today.
In the past, Ma Yun called the wind and rain, because the mainland population is large, the new users are endless, it seems that there is always no end to eating, after the monopoly in the e-commerce field, Ali has continued to copy, such as continuing to infiltrate the financial field through ants, infiltrating the express delivery field through rookies, infiltrating the fresh community group purchase field through hema, trying to grab fast money, but the hard technology that reflects the strength of a company but needs long-term investment is unwilling to touch.
When the official antitrust horn is sounded, such a game is no longer so smooth. In the third quarter of fiscal 2022, Alibaba's net profit was 20.4 billion yuan, down 75% year-on-year. In the new market context, if Ali can't come up with some real kung fu, the hard days are probably still ahead.
Second, there are indeed many companies in a serious undervalued state of Chinese stocks now, but the formation of this situation is not all the reason for the market, but is closely related to Sino-US relations, which is by no means a company that can be solved through stock repurchases.
JPMorgan Chase said in a research report, "Chinese Internet companies will be unattractive in the next 6-12 months, and the stock price prospects are unpredictable." This kind of statement is a bit alarmist, but it also vividly reflects the incomparable fragility of business in the face of some forces.