China stock rally leaves Alibaba out in the cold

Ten years on from its blockbuster initial public offering, Alibaba BABA, BABA is struggling to get its mojo back. The Chinese e-commerce group's New York and Hong Kong-listed shares are up less than 5% this year, badly lagging peers including archrival Tencent 700 which have recorded double-digit rallies over the same period.

That is not for lack of trying. The $194 billion company led by Eddie Wu plans to deploy $12 billion a year in share buybacks over the next three fiscal years; it has also promised to update shareholders on dividends when it reports annual results on Tuesday.

Investors aren’t biting. Dual-listed Alibaba is a notable laggard in the recent rally that has lifted the MSCI Golden Dragon Index, which tracks Chinese firms in the U.S., and Hong Kong's Hang Seng China Enterprises Index HSCEI up 10% and 17% respectively this year. Alibaba's stock is still down 74% from its peak in 2020.

Part of that is due to Alibaba's chaotic restructuring. In March 2023, the group announced a six-way breakup to unlock shareholder value. But Wu has since walked back on major parts of that plan, including spinning off its cloud computing business and listing its supermarket and logistics units.

Alibaba has struggled to get its house in order, too. Local rivals such as PDD's PDD Pinduoduo and Bytedance’s Douyin are eating into the group’s core shopping business. While revenue at Alibaba is set to rise 5.5% in the three months to end-March, to 220 billion yuan ($30.4 billion), according to an average analyst forecast compiled by LSEG, the $190 billion PDD's is tipped to more than double, albeit from a much smaller base.

Alibaba is prioritising artificial intelligence and cloud to boost growth. It is also ramping up investments at home: the company has ploughed $800 million into AI start-up Moonshot as part of the latter's $1 billion funding round in February, according to the Financial Times.

Shares of Alibaba now trade at less than 10 times forecast next 12-months earnings, per LSEG, less than half their 10-year average. Wu has more work to do to convince investors.

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CONTEXT NEWS

Alibaba is set to report earnings on May 14, with revenue expected to rise 5.5% year on year, to 219.7 billion yuan ($30.4 billion), in the three months to the end of March, according to the average analyst forecast compiled by LSEG.

($1 = 7.2339 Chinese yuan renminbi)