Alibaba’s $33.6 billion buyback fails to assuage investors

HONG KONG – Alibaba Group Holding green-lit another US$25 billion (S$33.6 billion) in stock repurchases, aiming to assuage investors worried about plateauing growth at a Chinese e-commerce and cloud pioneer struggling to fend off new rivals such as Temu owner PDD Holdings.

Alibaba’s board approved the expansion of an existing buyback programme that was already among the country’s largest, encompassing about US$9.5 billion last year alone. But its US-traded shares fell 1.45 per cent on Feb 7, giving up an initial spurt in part because investors remain concerned about crumbling Chinese consumption and a drop in per-user spending.

Alibaba is still grappling with fundamental questions surrounding the once-dominant Internet company – a barometer of Chinese demand. Its performance underscored a loss of market share to rivals such as PDD and TikTok owner ByteDance. It posted a lower-than-projected 5 per cent rise in December quarter revenue to 260.3 billion yuan (S$49.2 billion), well off the pace of previous years. Net income fell 70 per cent.

Fueling the uncertainty, the company is going through a complicated multi-way split intended to create several independent businesses and rejuvenate the national icon. The company last year outlined plans to float its Freshippo grocery chain and Cainiao logistics arm, but chairman Joseph Tsai on Feb 7 backed away from those plans because challenging market conditions would prevent it from reaping fair value for those businesses.

Alibaba – which after years of frenetic investment now controls a vast portfolio of assets – is now actively looking to sell off some of those non-core holdings, he added. It is exploring ways to offload the InTime department store chain and other retail operations, Bloomberg News has reported.

“We have a number of traditional physical retail businesses on our balance sheet. And these are not our core focus. It will make sense for us to exit these businesses,” Mr Tsai told analysts on a conference call. “This will take time given the challenging market conditions, but we’ll continue to work on it.”

Alibaba is trying to stage a comeback from years of brutal government punishment and strategic missteps that cost the e-commerce operator its place as leader of the country’s tech industry. Co-founder Jack Ma in November urged the company to correct its course.

It’s going through a thorough retrenchment after its glory days. As it tries to sell off assets or spin off adjacent businesses, it will retreat to a much more modest strategy of focusing on its core e-commerce business and the cloud computing operation. Executives repeatedly stressed that dual focus on Feb 7’s call.

Chief executive officer Eddie Wu and Mr Tsai, two of Ma’s longest-standing confidantes, took the helm as former chief Daniel Zhang abruptly quit, and are now charged with effecting the multi-way split. The ultimate goal is to beat back upstarts like ByteDance’s Douyin and PDD, while charting a new course for Alibaba to become a major player in artificial intelligence and the cloud.

That entails streamlining and big moves. Mr Wu is promoting a younger cohort of executives to revive its core Taobao and Tmall platforms, while exploring ways to unload assets and dial back Mr Zhang’s years-long “new retail” ambition. At the same time, Alibaba must find an answer to Douyin, which has won shoppers over and grew sales faster during last year’s Singles’ Day shopping festival.

In addition to the latest buyback, Alibaba’s executives pledged to aggressively return money to shareholders. They will target buying back 3 per cent of outstanding stock every year – at a cost of roughly US$12 billion annually. That will reduce the number of shares and push up the earnings per share.

“It’s about buying time, as Alibaba figures out how to rejuvenate the core commerce business,” said Wavelet Strategy’s Ivy Yang, a former manager at Alibaba. “Especially after the news that the cloud business will not be spun out, investor confidence in the restructuring is shaken.”

Competition “is likely to continue to center on building market share at low prices,” Mr Kenneth Fong, head of China internet research at UBS, said before the results. “Even if macroeconomic recovery occurs, price wars between platforms are likely to continue.”

Alibaba is also keen to shore up its foothold in overseas markets. Units such as Lazada and AliExpress underpin the global e-commerce operation, now among its fastest-growing divisions despite up-and-comers such as PDD’s Temu and Shein.

As with most major tech firms, Alibaba counts artificial intelligence (AI) among its longer-term priorities. It is developing its own ChatGPT-like services, while making multiple investments in start-ups such as Zhipu AI and Baichuan.

That AI effort has stuttered initially. Last year, Alibaba nixed the spinoff and listing of its US$11 billion cloud arm, surprising investors while citing US curbs that cut off access to Nvidia’s essential AI accelerator chips. It is unclear what steps executives plan to take to rejuvenate a business that once counted among its growth engines, but has lost market share to state-owned players in recent years. BLOOMBERG

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