Everyone knows that Alibaba will spin off, in the future, whether it is Cainiao or Alibaba Cloud, it is possible to independently finance and go public, and the release of the value of subsequent business groups can also appear to a new height, and the market that fully recognizes this is also given enough enthusiasm.
On March 29, Alibaba's Hong Kong stock opened up 14.96%; In terms of U.S. stocks, it also closed with a 14.25% increase on March 28, with the stock price hitting its largest one-day gain in nearly 10 months, and its market value rose by more than $30 billion. For three consecutive days that followed, the increase totaled more than 20%.
Source: Seeking Alpha
The rise in stock prices is not only to see the potential of some businesses after independence, but more importantly, this group with a market value of hundreds of billions of dollars, covering people's livelihood projects, and being closely watched by supervision for many years is also time to cure the "big company disease".
1. Treatment of "big company disease"
In order to promote economic development and improve people's living standards, large companies are very much needed in China, and the number of jobs directly or indirectly supported by Alibaba's retail alone exceeded 33 million that year, but all businesses in Taobao basically achieved prosperity. But now, the scale of the group is too large, although Ali is one of the few enterprises in the domestic middle office strategy that has made good progress, but the internal management is complicated, the level of various departments is uneven, and the efficient middle office cannot play an efficient synergy ability, in order to treat the "big company disease" Ali chose to spin off.
In a letter to employees, Daniel Zhang said that the management model of the holding company is wise for Alibaba because the six business groups that have been reorganized have different natures, different stages of development and different needs. And I think more importantly, in the past two years when the entire technology industry and platform companies were not happy, Alibaba's stock fell by 70%, and the business value that partially pulled down the average also caused the discount of Alibaba's stock to a certain extent, so at this time, the spin-off is not only a good recipe for regulatory response, but also creates business vitality and gives market confidence.
In this spin-off, Cainiao has the potential to become Alibaba's first IPO business. According to Bloomberg, Alibaba has invited CICC and Citigroup to participate in the spin-off work, which will be listed on the Hong Kong Stock Exchange with a valuation of about $20 billion, and an IPO could take place as early as the end of this year. As an important organic growth engine of the Group, Cainiao's revenue increased by 27% year-on-year to RMB16.553 billion for the quarter ended December 31, 2022, after offsetting the impact of cross-segment transactions. The total number of overseas sorting centers increased to 15. During last year's Tmall 11.11 global carnival season, the number of orders including direct or door-to-door delivery via Cainiao Station peaked at more than 18 million in a single day.
Another part that is strongly optimistic by the market is Alibaba's cloud business. For the three months ended December 31, 2022, the cloud business segment consisting of Alibaba Cloud and DingTalk had an adjusted EBITA of RMB356 million, compared to RMB134 million for the same period in 2021. In addition, Alibaba Cloud is also the first profitable cloud service provider in China. According to the company's financial report, Alibaba Cloud's revenue in the third quarter of 2021 reached 16.1 billion yuan, and the adjusted EBITA profit was 24 million yuan. In 2022, Alibaba Cloud accounted for 36% of China's cloud market share, ranking first, with revenue of 75.297 billion yuan, an increase of 7.6% compared to 2021. In today's era of AI boom and everything is on the cloud, as Alibaba Cloud, which has the highest market share, it is impossible for Alibaba Cloud to have no opportunity to develop.
In fact, the biggest vested interest after the implementation of the spin-off is Ali itself as the holding company. Under the new restructuring plan, Alibaba will wholly own Taobao Tmall Commerce Group, one of the company's most profitable and promising business units, while current CEO Daniel Zhang will also lead the development of the division's business. Instead of evenly spreading time and energy across 6 departments, today's Xiaoyaozi Daniel Zhang can focus more on the most core and promising business and play a higher level of management.
After the spin-off, Alibaba will be separated from other businesses that are slightly lengthy, which is considered by the market to be a successful "slimming plan", and the group will have higher liquidity in the future. Domestic and foreign investors who are more interested in Taobao's Tmall business may have heavier positions and more positions in Alibaba after the split, and Alibaba's currently discounted shares are likely to be further eased.
(Elated U.S. stock investors seeking alpha)
For the treatment of "big company disease", Ali chose to let the market as a touchstone to test the business of various departments, all the results will be determined by the market, so that the performance data, stock price market value reflects the ultimate success or failure, and every investor familiar with Alibaba more or less has its own valuation of its business group, but in my opinion, the most valuable potential is not the business that is about to be spun off but the Ant Group that has been spun off.
Second, the rekindled Ant Group
As early as 8 years ago, Alibaba listed Ant Group separately to establish a company, and prepared to go public in 2020. But three years have passed, and to this day, Ant Group has not been able to successfully go public, and the reason is unknown to everyone. The famous speaker Jack Ma's words at the Bund Finance Summit that year were in the limelight, but they also stumbled on Ant Group's IPO road. You know, the total financing amount of Ant Group's simultaneous listing in the two places reached 230 billion yuan, which was the largest IPO in the history of the world, and the number of A-share subscribers at that time also set a record in the history of the science and technology innovation board. However, on the evening of November 3, 2020, about a week after the speech, the Shanghai Stock Exchange and the Hong Kong Stock Exchange both issued statements suspending the listing of Ant Group.
Overnight, the most watched honor student in the class was openly invited to drink tea by the head teacher, and this scene made my spine chill to think about. Ant Group, which did not "face up to serious problems in its financial business," was not only suspended from its public offering, but also faced more than $1 billion in fines and strict controls.
Source: DION MBD
But tensions eased this spring, and the once-stalled IPO path appears to be showing signs of recovery. According to information from FX168 Financial News (Hong Kong) on April 18, Ant Group's fine fell to US$728 million (about 5 billion yuan) currently under consideration, and Alibaba's U.S. stocks rose short-term before the market, rising more than 1%.
In fact, after experiencing the "Please Drink Tea" disaster, Ant Group began a six-month corporate restructuring, and finally opened as a licensed financial institution on June 3, 2021, strictly adhering to the new norms and reappearing, and the most strictly controlled equity distribution has also been reorganized with the company's continuous rectification and restructuring. In the company's latest announcement, Ma Yun, who previously had "one veto power", his voting rights dropped sharply from 53.46% to 6.2%.
Source: Ant Group
In addition to the equity adjustment, the group's financial business has gradually improved, from a completely risk-free intermediate platform to a licensed financial holding company, which indicates that Ant Group will be subject to the same conventional financial regulations as banks. Although consumer credit products such as Huabei and Borrowing, which are mainly aimed at individuals and small and micro operators, reached 28.586 billion yuan in revenue in the first half of 2020 alone, a year-on-year increase of 59.5%, accounting for 40% of the total revenue, becoming a veritable "cash cow" of the group, after the implementation of the "Interim Measures for the Administration of Online Microloan Business", Ant Group must replenish capital or reduce the scale of credit to ensure regulatory compliance, so this part of the crackdown is bound to lead to the group's valuation shrinking.
In January 2023, some foreign institutions began to recalculate the intrinsic value of Ant Group, among which BlackRock assumed a valuation of nearly $64 billion; T. Rowe Price is estimated to be valued at $112 billion as of May 2022; Although BlackRock gave a valuation of $151 billion as of April 2022, Ant Group's valuation has been significantly reduced compared to about $310 billion in 2020.
But despite this, the future development potential of Ant Group, which has the opportunity to re-list, is still huge. As early as 2019, Ant Group's annual payments totaled $712 billion, providing about $300 billion in credit to consumers and small businesses, and is the largest Internet financial company in China, covering payment, savings, lending, insurance, investment and other services, with more than 730 million monthly active users. Even from now on, the penetration rate of private banking services is less than 50%, about 99.8% of enterprises are small and medium-sized enterprises, not to mention how many "moonshiners" rely on Huabei to enjoy in time, the consumer credit business in the domestic market still has great development potential.
Unlike the previous tense situation, the regulation of platform companies has obviously eased after the epidemic, after all, as the second largest economy, China's GDP grew by only 3% in 2022, far below the target of 5.5% and the second lowest in nearly half a century. The impact of the epidemic has made economic recovery the primary goal at the national level, which also heralded the "truce agreement" between regulators and platform companies, and the state's control over the platform economy began to continue to soften.
According to the announcement of the China Banking and Insurance Regulatory Commission, on December 30, 2022, Ant Financial Group's request to increase the registered capital of the company's consumer division was approved from 8 billion yuan to 18.5 billion yuan. According to China.com, on January 13, Ma Yiyang, head of the financial market of the People's Bank of China, said at the 2022 financial statistics press conference that under the "very positive and understanding" attitude of platform enterprises, most problems have basically been rectified. Last month, Jack Ma's return to China has a clearer symbolic significance, and the easing of the situation can fully support platform companies including Ali to survive a cycle safely.
III. Conclusion
"The world is not about what you can do, it's about what you should do." - Jack Ma.
No matter how fierce the game between the two sides was before, but from the perspective of economic development or enterprise choice, now the "biggest organizational change in 24 years" is both what Ali can do and Ali should do, and the business after the spin-off can be clearly divided into "creating growth" and "creating value", but how to subdivide it I believe that everyone has their own investment manual, it is better to discuss together in the comment area and give me insight into the rise.