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It’s hard not to recon Alibaba’s missed fortune. Shares of BABA have lost, since its peak in October 2020, about 75% of its value while other e-commerce platforms have benefited from the consumer spending spree during the pandemic and the move to IIoT.
To catch up, the management of BABA had an opportunistic window to restructure its business model. The company intended to become a nimbler firm by splitting into smaller more valuable entities. The market was told to expect several IPOs and fundraisings, thereby unlocking the true value of the conglomerate. Employees and investors were supposed to cash in on the listings’ windfalls, and indeed shares in Hong Kong advanced more than 16% on the news.
Instead, Alibaba announced in late March 2024 that it would be scrapping the planned restructuring, and buying the remaining shares of logistics provider Cainiao it didn’t already own. Furthermore, the management decided to pay the first-ever dividend and increase the share buyback program by another $25 billion.
Geopolitically and economically speaking, nothing has changed, apart from the in-house view that masterpieces need to be chaperoned by the government to better face the short and long-term consequences of US export controls on to China. In fact, the central government puts a freeze on all major modernization projects. However, this is the first contradictory message: official state media mention that will uncouple themselves from the US-engineered CPUs and GPUs while at the same time, at the granular level, companies can’t take preventive steps to overcome this embargo. If there were local CPUs, GPUs, and other related infrastructure equipment available, why would a company not proceed with a move forward?
All-in-all, with these multiple missteps and abandoned spinoffs, BABA’s market cap is lighter by many billions of dollars and the company appears busier with untangling its aborted strategy than developing new business and growth.
Alibaba may argue that focusing on a new agenda might be more appropriate to face the sluggish Chinese economy and the lingering stock-market trauma. But again, there is a contradiction too. Historically, a Chinese company would focus on the long-term issue and sit out the short-term inconvenience!
Seasoned observers note that there was a complicated management shake-up with some blood-letting and to some extent, the management is paddling backwards to a previous set-up:
Wu and Tsai are trusted lieutenants of Jack Ma – does this mean the company goes back to its original imperial view? This could well be the case since Alibaba’s dominance in e-commerce is under mounting pressure from the likes of PDD Holdings Inc., owner of e-commerce Temu, and ByteDance Ltd., both operating domestically and abroad. Furthermore, there is Tencent and Huawei that competing for market share in cloud services and other IT infrastructure developments.
The good points of BABA are:
The new BABA will be leaner and able to focus on its core business where it has a dominant position, selling items online. The government’s taught business plan instructs scaling the business where possible, i.e. e-commerce. In the short-term and given the overall situation, this will probably benefit investors more than spinning off its businesses.
By now everyone understands that the Chinese Government is in misfortune and may not only take unorthodox steps but also change its planned course of action to address the economic slowdown. The aborted IPO of Syngenta is the latest example of a long list of changes. This erratic course of action is somehow unsurprisingly, as the country faces for the first time in its modern history a full economic crisis. The hedge fund titan, Ray Dalio, who is well-introduced and a fine connoisseur of the Chinese community, issued also concerns about China. In particular, he said that the government is advised to cut its debt and ease monetary policy otherwise it would face, like Japan, decades of no growth at all. Remember, the economic crisis comes after +30 years of unprecedented growth which has given its population a very high level of self-esteem and, obviously, a touch of superiority. The China-US trade tensions are a reflection of this development. While the Chinese-based R&D in technology is centuries behind what happens in Europe and the US, China may undertake all possible steps to avoid being subordinated to Western technologies. However, that uncoupling causes China to face difficulties in obtaining new foreign investments and retaining existing ones. More importantly, there is an important internal issue. The discrepancy between the poor and the rich is highly important. Without economic, cultural, social-economic, and welfare reconciliation, the chances of civil unrest to start within the next 10 years are high. Dalio argues that when there is a lot of debt and big wealth gaps at the same time as there are great domestic and international power conflicts, and/or great disruptive changes in nature, and great changes in technology, there is an increased likelihood of a 100-year big storm.
Knowledge is power.
