After several quarters of stunted growth and seeing around $600 billion of its value wiped out since October 2020, Alibaba Group Holding Ltd. (BABA, Financial) is taking drastic measures to get back on track.
In its most significant reorganization in its 24-year history, the Chinese e-commerce giant announced on Tuesday it is splitting the company into six business groups in an effort it said is “designed to unlock shareholder value and foster market competitiveness.”
The six businesses will be:
- Cloud Intelligence Group
- Taobao Tmall Commerce Group
- Local Services Group
- Cainiao Smart Logistics
- Global Digital Commerce Group
- Digital Media and Entertainment Group
While Daniel Zhang will continue to serve as chairman and CEO of Alibaba, each of the other units, which will be able to raise outside funding and go public, will be managed by its own CEO and board of directors. The only exception is Taobao Tmall Commerce Group, which will remain a wholly-owned unit of Alibaba headed by Trudy Dai.
Further, as was previously announced, Zhang will also lead the Cloud Intelligence Group, which will consist of all cloud, artificial intelligence activities and businesses like DingTalk.
The Local Services Group, which Alibaba said will encompass navigation platform Amap, delivery service Ele.me and other businesses, will be led by Yu Yongfu. Cainiao Smart logistics will continue to be under the direction of Wan Lin, while Jiang Fan will be the CEO of the Global Digital Commerce Group and Fan Luyuan will be the chief executive of the Digital Media and Entertainment Group.
In an email to employees, Zhang said, “This transformation will empower all our businesses to become more agile, enhance decision-making and enable faster responses to market changes.”
The market appears to think so, too, as U.S.-listed shares popped more than 9% in premarket trading following the announcement to around $95.
This is a welcome reprieve from the beating the stock has taken over the past several years as Chinese regulators cracked down on the tech sector after the stock reached its all-time high of $317.14 on Oct. 27, 2020. Alibaba was dealt another blow when its fintech affiliate, Ant Group, was forced to cancel its public debut in November of that same year. In 2021, it was then fined $2.6 billion as part of an antitrust probe. Prolonged lockdowns and a subsequent economic slowdown associated with the Covid-19 pandemic also significantly impacted its business.
Since hitting its peak, the stock has tumbled around 70%.
Earnings update
On Feb. 23, Alibaba reported its earnings for the third quarter of fiscal 2022, which ended Dec. 31.
For the three-month period, the company posted revenue growth of 2% from the prior-year quarter to $35.92 billion, which topped Refinitiv’s estimates. Net income increased 69% to $6.78 billion.
Further, earnings per American depositary share of $2.79 were up 14% from a year ago.
Despite the overall growth in revenue, Alibaba noted sales in its biggest business, the China commerce division, were down 1% year over year. Further, it said gross merchandise volume declined by mid-single digits as a result of low demand, increased competition and supply chain disruptions.
Its international sales, however, grew 18% from the year-ago quarter.
Looking ahead, Zhang noted in a statement the company expects consumer sentiment and economic activity to continue recovering.
“We are focused on driving growth for our customers amid the competitive landscape, and creating sustainable, long-term value for our shareholders,” he said.
Valuation
Sporting a $244.90 billion market cap, Alibaba’s U.S.-listed shares are trading with a price-earnings ratio of 53.35, a price-book ratio of 1.75 and a price-sales ratio of 1.97.
The GF Value Line suggests the stock is significantly undervalued currently based on its historical ratios, past financial performance and analysts’ future earnings projections.
At 85 out of 100, the GF Score indicates the company has good outperformance potential. While Alibaba received high ratings for profitability, growth and financial strength, the GF Value rank is more moderate and momentum is low.
Guru interest
Despite the volatility the stock has experienced over the past several years, and even a period when it was at risk of being delisted in the U.S. entirely, quite a few gurus see value in the company. Over the past several quarters, however, the number of sells has surpassed the buys.
Currently, David Herro (Trades, Portfolio) has the largest stake with 1.38% of its outstanding shares.
According to 13F filings, PRIMECAP Management (Trades, Portfolio), Dodge & Cox, Philippe Laffont (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Al Gore (Trades, Portfolio)’s Generation Investment, the iShares MSCI ACWI ex. U.S. ETF, Steven Cohen (Trades, Portfolio), Ron Baron (Trades, Portfolio) and Sarah Ketterer (Trades, Portfolio) also have large positions as of the end of the fourth quarter.
Other notable guru investors include Charlie Munger (Trades, Portfolio), Prem Watsa (Trades, Portfolio), David Tepper (Trades, Portfolio) and Michael Burry (Trades, Portfolio).
Investors should be aware that 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
