Alibaba kicks off unit IPOs as revenue growth weakens

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Alibaba is planning to list its logistics and grocery businesses within the next 18 months and spin off its cloud division as the Chinese group commences a massive shake-up of its tech empire.

In its first financial results since the tech giant announced plans to split into six businesses, Alibaba kicked off the group’s break-up as it posted a single-digit rise in revenues during the first quarter.

The Chinese group on Thursday said revenues had risen 2 per cent in the three months to March to Rmb208bn ($30bn), compared with a year earlier.

Alibaba said the board had approved plans to execute an initial public offering for its Freshippo grocery business, expected to be completed within the next year. It is also seeking to list its Cainiao Smart Logistics in 12 to 18 months.

“We believe that these two companies are ready to go public,” said Daniel Zhang, the group’s chief executive, during an investor call.

Alibaba also revealed plans to completely spin off its struggling cloud business through a stock dividend to shareholders after completing a private fundraising round for the unit.

But the cloud computing arm’s recent struggles could dampen its valuation in private markets. In the first three months, the unit reported a 2 per cent fall in revenues year on year, the first quarterly sales decline on record.

“The cloud business is fundamentally different from other consumer-facing businesses. This will allow the cloud business to sharpen its business strategy and optimise operations,” said Zhang, adding that Alibaba intended for the business to become an independently listed company.

The announcements come less than two months after Alibaba revealed its plan to split into six business units in a radical break-up that comes after Beijing’s crackdown on China’s tech giants.

Alibaba on Thursday announced the six new chief executives and board members for the respective new entities.

Under the restructuring, the Alibaba holding group will retain full ownership of its domestic ecommerce businesses Tmall and Taobao, which generated more profits than the group as a whole in its last fiscal year.

Alibaba said businesses outside of domestic ecommerce will be “given a limited time period to access Alibaba group capital” before being cut off from the parent company financing.

Analysts have said that its lossmaking local consumer services unit, which includes its food delivery and Alibaba’s mapping app, may struggle to survive after being cut off from cash flow generated from the profitable ecommerce businesses.

Alibaba’s share price rallied following news of the split-up in March but has retreated close to pre-announcement levels amid investor concern over tepid spending on consumer goods and a slower than expected rebound in Chinese economic activity.

The group said net income was Rmb23.5bn in the first quarter, reversing losses during the same period last year due to one-off gains.

Revenue from its domestic ecommerce business was Rmb140bn, a decline of 3 per cent from the previous year.

Gross merchandise revenue on Tmall and Taobao decreased in mid-single digits as consumers shunned online shopping in favour of social-contact spending such as dining and visiting the cinema after China ended its zero-Covid policy late last year.

“In the past few months, we have noticed a gradual recovery in Chinese consumption, but consumer confidence and spending power still need further momentum,” said Zhang.

Goldman Sachs analysts said in a note to clients that Taobao and Tmall’s high-profit margins mean Alibaba will “have the buffer to step up investments to defend its market share” in ecommerce amid “intensifying competition”.

They added that China’s reopening could see a “plateauing” of the livestream shopping format popularised by ByteDance’s Douyin during the pandemic.

Alibaba said on Thursday it had tested a new interface for its Taobao app that aimed to increase exposure for its livestream shopping channels, in a direct challenge to Douyin.

The group said it had spent more than $1.9bn to repurchase 21.5mn shares during the three-month period, or about 1 per cent of its outstanding share count. The group has about $19.4bn left to utilise as part of a previously authorised buyback programme.

Additional reporting by Ryan McMorrow in Beijing

'Big Short' Michael Burry is long on China's Alibaba and JD.com — these stocks are now a fifth of his portfolio

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"Big Short" investor Michael Burry is long on China's Alibaba and JD.com.

The two online retail giants are now the top two stock holdings under Burry's Scion Asset Management.

They collectively made up 20% of the hedge fund's $107 million allocation as of March 31, according to Scion's Form 13F regulatory filing that was made public on Monday.

Scion Asset Management held 100,000 Alibaba shares worth $10.2 million and 250,000 JD.com shares worth nearly $11 million as of March 31.

The hedge fund's holdings in both Chinese tech companies increased from December 31, when it held 50,000 Alibaba shares and 75,000 JD.com shares, according to the regulatory filing.

Burry's bet on Alibaba and JD.com stands in contrast to those of other hedge funds that collectively sold 4 million JD.com shares in the first quarter of 2023, Bloomberg reported, citing multiple 13F filings. 

But Burry is known for being a contrarian as much as he is known for his dire market warnings. In January, he spooked the market by simply tweeting the word "Sell." At the time, it was read as a signal to investors that they shouldn't be fooled by a rebound in stocks and should not buy into the market gains.

Burry walked that statement back in March, tweeting that he "was wrong to say sell." Both tweets have since been deleted.

Monday's 13F disclosure also revealed Burry snapped up shares of smaller banks including First Republic and Pacific Western in the first quarter of 2023 amid the banking crisis.

The investor first came into the limelight after he correctly predicted and profited from the US housing market crash of 2008. His massive bet against the housing bubble at the time was featured in the book and movie "The Big Short."

Alibaba shares closed 3.5% higher at $88.34 apiece on the New York Stock Exchange on Monday, while Nasdaq-listed JD.com ended almost 7% higher at $37.67 apiece. Both stocks were flat in after-hours trade.

Scion Asset Management did not immediately respond to Insider's request for comment sent outside regular business hours.

Michael Burry Doubles Alibaba Stake in Big Bet on China Tech

(Bloomberg) -- Michael Burry, the money manager made famous in The Big Short, now has a Big Long when it comes to China. He boosted his bullish bets on e-commerce giants JD.com Inc. and Alibaba Group Holding Ltd., even as other hedge funds cooled on the nation’s reopening trades. 

CONSTELLATION BRANDS, INC.

The two stocks have become the largest holdings of his Scion Asset Management, accounting for 20% of his stock portfolio. His success relies not only on the companies recovering their mojo but also surviving the geopolitical risks that drove many of his peers away. 

Burry, who rose to fame after predicting the 2008 housing crash, made headlines Monday after revealing in a 13F filing that he scooped up regional lenders during the banking turmoil in the first quarter.   

READ MORE: Michael Burry Loaded Up on Bank Stocks in Tumultuous Quarter (1)

That wasn’t his only contrarian bet. After purchasing Alibaba and JD.com in the final months of 2022 as China ended the Covid Zero policy, Burry boosted the holdings of the two last quarter. His stake in JD.com more than tripled to 250,000 shares, worth $11 million, or 11% of his portfolio. He also doubled holdings of Alibaba to $10 million.

The vote of confidence came as many of his peers offloaded the stocks. As a group, hedge funds sold 4 million shares of JD.com, according to 13F filings. The reduction of $451 million, which includes the valuation change of the stock during the quarter, marked one of the largest declines among US-listed companies.

Alibaba’s shares rose as much as 1.6% in Hong Kong on Tuesday, while JD.com jumped 4.7%. The moves track a Monday rally in the Nasdaq Golden Dragon China Index as Alibaba’s promise of “huge” investments in its Taobao shopping app and the US securities regulator clearing its fiscal 2022 report also supported sentiment. 

In general, though, the so-called reopening trades have been disappointing. The MSCI China Index is flat for the year as the economy shows signs of losing momentum. China’s consumer spending and industrial activity grew at a slower pace than expected in April, data showed Tuesday, underscoring the recovery’s weakness.

Hedge funds’ net exposure to China has dropped to 10.5% from 13.3% in January, according to data from Goldman Sachs Group Inc.’s Prime Services unit. 

JD and Alibaba haven’t been performing well since their reopening rally faltered at the end of January. JD’s US-listed shares have lost 32% this year, while Alibaba is little changed, even as it carried out an historic overhaul. Last week, JD reported the lowest-ever pace of revenue growth. 

Earnings estimates for the Hang Seng Tech Index have been slashed to near record lows as fierce competitions in the e-commerce sector pressured margins. Alibaba’s first-quarter results are scheduled on Thursday, with analysts estimating a sub-3% increase in sales. These are a far cry from the go-go days before the pandemic and Beijing’s 2021 clampdown on Big Tech.

Burry made his name as a contrarian, and that hasn’t changed. In this case, he’s betting that the fears about China Inc. are overdone.  

--With assistance from Amy Li, Yiqin Shen and Jeanny Yu.

(Updates with latest share price moves, more details.)

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