What happened
Shares of Alibaba Group Holding (NYSE:BABA) were up nearly 9% as of 1:30 ET today, bouncing off the stock’s 52-week lows it hit on Friday.
Investors seem to be breathing a sigh of relief over a plan by another Chinese stock that is going to delist from U.S. exchanges. Also, Alibaba announced a shake-up to its senior management team that garnered hope for improvement after a tough year. And a better macroeconomic forecast out of Beijing likely helped sentiment as well.
Image source: Getty Images.
So what
Last week, Chinese ride-hailing giant DiDi Global (NYSE:DIDI) revealed it was going to delist from the New York Stock Exchange, after it was directed to do so by China’s Cyberspace Administration. Since Alibaba is also listed on U.S. exchanges, fears over its own delisting caused the stock to plunge in sympathy, as shareholders were left in the dark on the question of forced selling.
But on Friday afternoon, DiDi released a statement saying its U.S. American depositary receipts (ADRs) “will be convertible into freely tradable shares of the Company on another internationally recognized stock exchange at the election of ADS holders.” The company plans to list in Hong Kong, so as long as U.S. DiDi shareholders have access to the Hong Kong exchange, converting shouldn’t be a problem. Alibaba already has shares that trade in Hong Kong, so it’s likely any potential delisting would follow the same procedures, and ADR holders wouldn’t be forced to sell.
Alibaba also announced on Monday that its current chief financial officer (CFO), Maggie Wu, would be stepping down, to be replaced by Toby Xu on April 1, 2022. Chairman Daniel Zhang said in the press release:
We are focused on the long-term, and succession within our management team on every occasion is always in the service of ensuring Alibaba will be stronger and better positioned for the future. … Toby joined Alibaba from PwC three years ago and was appointed Deputy Group CFO in July 2019. He swiftly demonstrated his solid capabilities and leadership in response to our continually evolving businesses. He took on increasing responsibilities that grew to include our strategic investments, in addition to financial management and operations. We are certain that Toby is the right person to serve as our new Group CFO.
A management shuffle could be a breath of fresh air for shareholders. While Alibaba’s core business remains profitable, many of its forays into newer businesses have been less successful, and most are still losing money. As a result, Alibaba’s profits fell sharply last quarter even as revenue grew. Given the competitive pressures in its core business, a change to the financial team might help bring the newer businesses and investments to profitability.
Now what
On top of competitive pressures and government fines, many investors may also be concerned that this summer’s popping of the property bubble in China could lead to a recession. However, Monday also saw China’s top government think tank proposing 5% economic growth for 2022. Should the central bank loosen monetary conditions to meet that target, it could relieve some pressure in China’s overall economy.
So the prospect of better-than-feared economic growth, a better-than-feared scenario with respect to possible delisting, and a management shake-up all contributed to Alibaba’s strong bounce off its lows today.
There is still a lot of uncertainty surrounding Alibaba, but the stock remains undeniably cheap at around 12.7 times next year’s earnings estimates.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.