Meme Stock Icon Cohen Buys Into Alibaba in Rare China Activism

(Bloomberg) — Meme-stock investor Ryan Cohen has taken a stake in Alibaba Group Holding Ltd. and is pushing the e-commerce leader to purchase back more of its shares, in a rare case of activism targeting a distinguished Chinese firm.

Most Read from Bloomberg

Cohen, who rallied individual stock investors to assist propel shares of moribund firms like GameStop Corp., built up a stake price a whole bunch of tens of millions of dollars within the second half of last yr, people accustomed to the matter said, asking to not be identified discussing private communications.

The entrepreneur, who became an idol to amateur investors after championing well-known but languishing stocks like Bed Bath & Beyond Inc., contacted Alibaba’s board in August to make the case its shares were undervalued, the people said, confirming a report within the Wall Street Journal. That’s based on a view it might probably achieve double-digit sales growth and almost 20% growth in free money flow over the following five years.

Such a performance would require a return to the scorching growth rates that China’s largest e-commerce company once routinely delivered — before it became a high-profile goal of Beijing’s crackdown on technology giants. The federal government in 2021 forced Alibaba and peers like Tencent Holdings Ltd. to revamp business practices, wiping out top-line growth at a time Covid Zero curbs weighed on the economy. The corporate co-founded by billionaire Jack Ma posted a surprise loss in its latest quarter, as revenue again barely grew.

It’s also removed from certain whether Cohen’s small stake relative to Alibaba’s $300 billion market value would carry any weight with an organization that, for the reason that crackdown, has been careful to align itself with government “common prosperity” initiatives reminiscent of philanthropy.

Just this month, a government entity took so-called “golden shares” in an Alibaba entity, which in theory allows the federal government to nominate directors or sway necessary company decisions and ensure longer-term control over the sector. Alibaba climbed 3% in Hong Kong Tuesday.

“While Ryan is influential and the news is positive for BABA, it’s unlikely to have much sway with the board” given Chinese authorities have that golden share, said Hao Hong, an economist with Grow Investment. “BABA has been going up, but not due to Ryan Cohen.”

More broadly, Cohen is getting in at a possible inflection point for the world’s No. 2 economy.

From Goldman Sachs Group Inc. to Morgan Stanley, a growing variety of strategists have made bullish calls following Xi Jinping’s Covid Zero exit and vows to finish a clampdown on the tech sector. The shifts have spurred a roughly 60% rally within the Hang Seng Tech Index since an October trough, a world-beating feat regardless that the gauge’s market value continues to be half of its February 2021 peak.

“Cohen’s entry might be broadly positive for Alibaba’s stock and given his wide following it should lift sentiment for Chinese tech generally,” said Jin Rui Oh, a director at Mariana UFP LLP in Singapore.

Cohen helped construct right into a pet supply giant that was sold for $3 billion, after which chaired a board committee tasked with transforming video-game retailer GameStop.

His appeal amongst investors was cemented by tweets hitting back at critics, including a poop emoji with a picture of a Blockbuster store (in response to comparisons of GameStop to the largely defunct movie rental franchise) and an apparent screenshot from a television ad (a nod to those that compared Chewy to the failed pet goods retailer).

It’s unclear when he took a selected interest in Alibaba, which for years symbolized the rise of Chinese web technology and innovation. The entrepreneur last yr tweeted cryptically, “I actually have a crush on China.” The activist has thus far been silent on Alibaba itself.

However the entrepreneur is moving into a market driven by concepts many Western investors are less accustomed to. In the course of the crackdown, multiple agencies put in place sweeping regulations to manage the whole lot from content and social media to gaming and the gig economy — areas during which Alibaba is exposed.

Beijing nonetheless hasn’t publicly opposed shareholder returns. Tencent has been usually buying back its own stock and distributing shares in major investees reminiscent of Inc. and Meituan to its backers. Alibaba itself in November approved a $15 billion expansion to an existing $25 billion buyback program, while extending the duration to 2025.

“Activist Ryan Cohen’s presence on Alibaba’s board might help raise public shareholders’ governance over the corporate’s strategic decisions, particularly as Beijing takes a stake in the web giant,” Bloomberg Intelligence analyst Catherine Lim said.

Read more: As China Tech Stocks Roar Back, a Latest Normal Will Test Upside

–With assistance from Mayumi Negishi, Abhishek Vishnoi and Anders Melin.

(Updates with share motion from the sixth paragraph)

Most Read from Bloomberg Businessweek

©2023 Bloomberg L.P.

Leave a Comment

Copyright © 2024. All Rights Reserved. Finapress | Flytonic Theme by Flytonic.