Alibaba stock rises as big share buybacks offset slight profit loss

Alibaba announced that its board of directors has approved a $25 billion increase in its stock repurchase program through the end of 2027, increasing cash available for stock repurchases to $35.3 billion over the next three fiscal years.

“By leveraging our strong balance sheet and cash flow, we increased investment in our strategic priorities and improved shareholder returns,” Chief Financial Officer Toby Hsu said in a statement. “It shows confidence in the business outlook.” “Our consistent share buybacks have also reduced the number of shares outstanding, while simultaneously increasing EPS and cash flow per share.”

Alibaba’s U.S.-listed shares rose 2.4% in premarket trading.

The rise in stock prices is understandable. Investors will be satisfied if the stock buyback arsenal is significantly increased. Shareholders are used to disappointments, from China’s economic slowdown to Alibaba’s scrapping of its cloud computing and artificial intelligence unit spinoff, and they don’t seem to be the most difficult group to impress.

But reading between the lines, Alibaba’s results continue to highlight the bleak state of China’s economy and the competitive threat to the company from budget-friendly rivals like Pinduoduo and Tem owner PDD.

“Our top priority is to reignite the growth of our core businesses of e-commerce and cloud computing,” Alibaba CEO Eddie Wu said in a statement. “Next year, we will step up our investment to improve the core experience of our users to drive Taobao and Tmall Group’s growth and strengthen our market leadership.”

Taobao and Tmall, Alibaba’s core Chinese online retail platforms, saw revenue growth slow at 2% year-on-year. This is also the area where Alibaba faces the most pressure from his PDD, with the company’s market capitalization symbolically overtaken in recent months.

This is breaking news. Read a preview of Alibaba earnings below, then check out our detailed analysis immediately.

Alibaba’s quarterly results, to be released on Wednesday, come at a chaotic time for China’s markets, with continued concerns about the health of the world’s second-largest economy. Profits from e-commerce and cloud computing companies could add to the concerns, or the recent rally in stock prices could continue.

Alibaba is expected to report a profit of 2.39 Chinese yuan (34 cents) per share and revenue of 260.7 billion yuan ($36.7 billion) in the December quarter, based on forecasts from analysts surveyed by FactSet. . If the results are as expected, revenue would be down 1% year-over-year and sales would be up 5%.

If these growth rates seem anemic, it’s because we’re a far cry from Alibaba’s days of double-digit revenue growth. The company and its core domestic e-commerce business have been hit hard by China’s economic slowdown over the past year. Not only is Alibaba under pressure as consumers are less willing to spend, budget-friendly rivals like PDD are also competing for money.

Alibaba has been in a tough spot in recent years. The Chinese government’s crackdown on tech regulations and coronavirus lockdowns hit the company’s stock price hard, with the price dropping more than 70% from its peak in late 2020 to early 2023. The recovery expected last year did not materialize due to China’s economic stagnation and economic crisis. Further strain from the country’s vast and debt-laden real estate sector.

Alibaba stock continues to fall, losing more than a quarter of its value in the past 12 months.

As 2024 begins, little has changed. Chinese stocks remain volatile as investors worry about the economy and hope that effective government stimulus eventually materializes. Alibaba’s quarterly results could add color to the picture, as results from its core e-commerce business provide signals about broader spending trends.

Alibaba shares rose 3.7% on Tuesday, but positive news could extend recent gains, while disappointment could put a brake on them. Technical name like JD.com
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P.D.D.
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and Baidu may be particularly affected.

A secondary focus will be on the company’s cloud computing and artificial intelligence division. Alibaba’s cloud and AI division suffered as exports of high-tech chips to China fell amid geopolitical tensions with the United States, and plans to spin off the business fell through.

A broader spinoff or restructuring plan could also play a role in Wednesday’s announcement. Last March, Alibaba announced that it would transform from a conglomerate to a holding company in a bid to unlock shareholder value by spinning off a number of businesses. Plans for a cloud unit were shelved due to chip issues, but other spinoffs are also in jeopardy due to the widespread depletion of China’s capital markets.

Alibaba has used earnings releases as an opportunity to break news about its restructuring, so another update on Wednesday wouldn’t be surprising. Even if surprises are the last thing investors want at the moment.

Email Jack Denton at jack.denton@barrons.com.