Alibaba Group Holding Limited : Strategic refocusing, massive share buybacks

Unlike Amazon, whose e-commerce development is financed by its very lucrative cloud business, Alibaba derives the vast majority of its revenues and profits from the operation of its shopping platform.

The stock market disappointment over the last decade is epic: Alibaba is trading at its 2014 IPO price despite a twenty-fold increase in revenue and a three-fold increase in profit. This operational performance, while notable, is however less spectacular than Amazon's.

The unreadable offshore control structure, the still dubious accounting of Chinese companies and Jack Ma's setbacks with the party caciques have passed. The undeniable slowdown of the Chinese economy, attributed by some to the aftermath of the pandemic, by others to the end of an almost half-century-long economic super-cycle, is also worth mentioning.

Finally, Alibaba is facing a more or less structural margin squeeze, because although it was a pioneer in e-commerce in China, competition is now developing at a breathtaking pace. For example, Shein, which came out of nowhere a few years ago, has now surpassed Zara in terms of business volume.

A doubt also remains on the curious management of the group's cash - a war chest of $76 billion. Alibaba is piling up profits on the balance sheet, without disclosing the details of its cash investments. All this is a bit surprising, even if we are not so close to opacity in this matter.

But things are moving - and the group's annual results, published at the end of last week, confirm this for good. Alibaba is launching a major restructuring to simplify its business portfolio: the logistics and grocery segments, both loss-making, will be listed independently, while the cloud segment will be separated from the holding company via a spin-off.

Alibaba is refocusing entirely on e-commerce, and in parallel announces a massive share buyback program. $11 billion has already been spent on it over the course of the fiscal year just ended. The group estimates that this represents 44% of its free cash flow.

A simplification of the structure, a valuation at x8 the profits and a massive share buyback program: this is undoubtedly what caught the eye of many hedge fund managers in recent weeks, including the famous Dan Loeb.