Alibaba Resists Cohen's Pressure for Stock Buybacks

Ryan Cohen, a billionaire investor, may encounter difficulties in his attempts to persuade Alibaba Group Holding Ltd. to repurchase more of its shares.

In the nine months of 2022, Alibaba purchased $7.3 billion of its US-listed stock, which is a 21% decrease from the amount in 2021, as reported by Bloomberg. Analysts have stated that Cohen's suggestion - after he acquired a stake in the e-commerce giant - may not be taken into consideration since his ownership is still relatively small and Chinese companies are not as focused on shareholder value as American companies.

Data from January 2022 to September 2022

Jason Hsu, Chief Investment Officer at Rayliant Global Advisors, which has offices in Beijing and Shanghai, stated that a buyback is a signal and not a cost-effective measure. He went on to say that a large amount of money, potentially in the hundreds of millions or billions, must be spent to convince the market that it is not a gimmick.

It is not common for Chinese tech companies to use their capital to purchase their own shares. Beijing believes that the main purpose of capital markets should be to raise funds for businesses to create jobs and promote innovation, rather than to increase shareholder profits.

In June 2021, Meituan, a food delivery company, declared that it would repurchase 10% of its shares. Similarly, Kuaishou Technology, a live-streaming platform operator, made a similar announcement in April 2020. Despite the fact that the stocks of both companies have dropped by half since their respective announcements, neither firm has taken any action to implement their plans.

Analysts are predicting that China's tech firms may be increasing their buybacks. Bloomberg Intelligence analysts Catherine Lim and Trini Tan wrote in a research note this week that Alibaba may be expanding its $40 billion share repurchase program by May, keeping up with Tencent Holdings Ltd.'s returns to shareholders.

It is possible that companies such as Alibaba, Tencent and Meituan may experience an increase in cash generation in 2023 due to China's slowing digital economy. This could lead to a decrease in capital expenditure, which could then result in more money being available for share buybacks and dividends this year. Tencent notably increased their buybacks by a factor of ten in the first nine months of 2022, following Prosus NV's divestment of their stake.

This week, people familiar with the matter reported that Cohen, who was instrumental in motivating individual investors to purchase GameStop Corp. stock in 2021, believes that Alibaba can experience double-digit sales growth and nearly 20% growth in free cash flow over the next five years.

According to Willer Chen, a senior analyst at Forsyth Barr Asia Ltd. in Hong Kong, the most important factor for success is still the improvement of fundamentals. However, given Cohen's limited stake in Alibaba, it may be difficult for him to make a significant impact. Chen also noted that the high turnover in the US market may not be enough to significantly boost the share prices of Chinese American depositary receipts, even with the implementation of a buyback program.

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