Billionaire investor Ryan Cohen’s efforts in pushing Alibaba Group Holding Ltd. to buy back more shares may face challenges.
(Bloomberg) — Billionaire investor Ryan Cohen’s efforts in pushing Alibaba Group Holding Ltd. to buy back more shares may face challenges.
Alibaba bought $7.3 billion of its US-listed stock in the nine months in 2022, a 21% drop from the amount in 2021, according to the latest filings compiled by Bloomberg. Analysts say Cohen’s call — after he took a stake in the e-commerce leader — may go unheeded given his holding remains relatively small and China’s companies are less driven by shareholder value than their US counterparts.
“A buyback is purely a signaling effect, and it is not cheap,” said Jason Hsu, chief investment officer at Rayliant Global Advisors, an asset manager with offices in mainland cities including Beijing and Shanghai. “You need to burn potentially hundreds of millions if not billions to convince the market that it is not a gimmick.”
Deploying capital to buy their own shares is something of a rarity for most Chinese tech firms. The priority for capital markets, as Beijing sees it, is to raise funds for companies to benefit the real economy in the form of jobs and innovation rather than seek to boost shareholder returns.
Food delivery company Meituan said in June 2021 it would buy back 10% of shares, while live-streaming platform operator Kuaishou Technology announced an identical plan in April last year. Neither firm has moved to execute the plans, even though shares in both have fallen about half from their respective announcements.
Still, some analysts see China’s tech firms increasing their buybacks. Alibaba may enlarge its $40 billion share repurchases program by May assuming it keeps pace with Tencent Holdings Ltd.’s returns to shareholders, Bloomberg Intelligence analysts Catherine Lim in Singapore and Trini Tan in Hong Kong wrote in a research note this week.
Cash generation by companies such as Alibaba, Tencent and Meituan may increase in 2023 as China’s slowing digital economy leads to lower capital expenditure and this may free up more money for share buybacks and dividends this year, they said. Tencent boosted its buybacks by 10-fold in the first nine months in 2022, after its dominant shareholder Prosus NV shed its stake.
Cohen, who helped spur individual investors to buy meme stock GameStop Corp. in 2021, argues that Alibaba can achieve double-digit sales growth and almost 20% growth in free cash flow over the next five years, people familiar with the matter said this week.
“The key is still the improvement of their fundamentals, and it will be hard for Cohen to move the needle given his very minor holding in Alibaba,” said Willer Chen, a senior analyst at Forsyth Barr Asia Ltd. in Hong Kong. “With the high turnover in the US market, even a small boost of the buyback program of Chinese American depositary receipts may not help the share prices to a large extent.”
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–With assistance from Julie Chien, Jeanny Yu and Subrat Patnaik.
(Updates to market open.)
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