The spectacular September rally quickly ran out of steam, so much so that the title of the Chinese e-commerce giant is slowly but surely returning to its valuation floors.
Following the announcement of major measures to support the economy – mainly focused on the recapitalization of banks and regional governments undermined by a colossal real estate crisis – the surge in prices on the Chinese stock markets is testing its ceiling of resistance at fifteen.
Carried away by the euphoria that was triggered in the wake of the central party’s announcements, Alibaba stock also skyrocketed. In September, in barely a month, it appreciated by 40%… Before abandoning most of these gains and gradually falling back towards its starting point.
Alibaba, to its credit, is not alone in this. Its peers like PDD, Tencent, Baidu and JD.com are also suffering the blow, victims of a similar loss of steam. Even more mercurial in its speculative fevers than the American market, the Chinese market here gives a lesson in humility to the legions of Western hedge funds who have rushed there recently.
Our analysts, moreover, only half believed it. Alibaba’s major restructuring projects have been mysteriously abandoned one after the other. These curious declines occurred while Jack Ma was also backpedaling, after announcing a partial sale of his stake – while the stock was trading at its lowest levels – inevitably poorly received by the market.
Earlier this year, the founder of Alibaba published on his blog a vibrant plea to rekindle the flame within the group. It will take more for morale to return: Alibaba is still losing ground against its competitors, notably Shein, PDD and ByteDance, all in full expansion, while the erosion of its margins continues and its internal power struggles are exposed in broad daylight in the Chinese press.
The group, which at the start of last year still retained almost half of its market capitalization in cash and cash equivalents, decided to focus on capital returns to shareholders: over the last seven half-years, $49 billion of Cumulative free cash flows were thus fully returned to shareholders — $43 billion via share buybacks, the remaining $6 billion in dividends.
Perfectly rational on paper, this choice underlines the apparent – and theoretically spectacular – discount of the group at current valuation levels, since its enterprise value oscillates around $150 billion. However, the lethargy of the price also betrays the distrust of investors for a group whose activities all seem – including in e-commerce, the cloud and logistics – to be losing momentum.
Added to these apprehensions – as is customary in China it should be said – barely readable accounting, an opaque offshore control structure, the slowdown of the Chinese economy and Jack Ma’s past setbacks with the party leaders.
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