Alibaba Shares Slump to Six-Month Low Despite Proposed Rise in Shares Buyback

Chinese technology giant Alibaba’s shares plunged as much as 9.2% to a six-month low on Monday as the world’s largest online and mobile e-commerce company’s increase of a proposed stock buyback program to $10 billion failed to lift sentiments amid growing concerns about a regulatory crackdown on Jack Ma’s empire.

Alibaba upsized a proposed stock buyback by $4 billion to $10 billion, effective for two years through the end of 2022. This comes at a time when Chinese regulators are launching an antitrust investigation into China’s e-commerce leader and would summon Alibaba’s affiliate to meet in coming days.

“We expect that the fine amount may not be large this time, which aims to remind the Company to avoid improper acts in the future, and to avoid monopolistic behaviour which is prohibited by relevant anti-monopoly laws. It is possible for further anti-monopoly law investigations for the Internet sector to be conducted, resulting in short-term uncertainty across the Internet sector,” noted Danny Law, equity analyst at Guotai Junan  Securities in Hong Kong.

“However, we don’t think that Chinese regulators are aiming to resist the development of internet businesses in China. On the other hand, Chinese regulators are trying to deter inappropriate acts by Internet enterprises, pushing Internet enterprises to adjust their expansion strategies.  This move will help Internet businesses in China to grow healthily and adopt socially responsible practices, benefitting the whole society eventually,” Danny Law added.

Alibaba shares closed about 8% lower at HK$210 after plunging as low as 9.2% intraday on Monday. However, the stock is just up over 1% so far this year.

Alibaba Stock Price Forecast

On the U.S.-listed stock, 22 analysts who offered stock ratings for Alibaba in the last three months forecast the average price in 12 months at $338.47 with a high forecast of $365.00 and a low forecast of $290.00. The average price target represents a 52.53% increase from the last price of $221.90. All of those 22 equity analysts rated “Buy”, according to Tipranks.

Morgan Stanley gave a base target price of $345 with a high of $405 under a bull scenario and $208 under the worst-case scenario. The firm currently has an “Overweight” rating on the e-commerce company’s stock.

Several other analysts have also recently commented on the stock. Alibaba Group had its price target cut by Raymond James to $330 from $335. They currently have a strong-buy rating on the specialty retailer’s stock. Argus upped their target price to $330 from $260 and gave the stock a buy rating. Mizuho increased their target price to $325 from $300 and gave the company a buy rating. Nomura restated a buy rating and set a $309 target price. At last, Goldman Sachs Group increased their target price to $350 from $315.

Analyst Comments

“COVID-19 has accelerated e-commerce penetration, especially in FMCG (fast-moving consumer goods), the next core category for e-commerce. Alibaba is set to benefit from this secular trend, given its leading position, and we expect it to maintain >50% market share over time, thanks to its strong ecosystem,” said Gary Yu, equity analyst at Morgan Stanley.

“In addition, merchants’ marketing budgets will continue to shift online given the increasing reliance on e-commerce and better conversion. Alibaba’s ad resources remain under-monetized. F2022e non-GAAP P/E is 24x, which we think is attractive given expanded addressable market for its e-commerce and cloud businesses. Profitability improvement in cloud serves as a key share price catalyst.”