Alibaba shares plunge on Monday after raising share buyback size

The e-commerce group’s Hong Kong shares took a beating a day after Chinese authorities ordered its fintech arm Ant Group to refocus on its payments business.

  • Alibaba’s Hong Kong share price fell over 7% on Monday (28 December 2020) morning
  • This comes despite the group raising the share buyback amount to US$10 billion from US$6 billion previously
  • On Sunday (27 December 2020), Chinese authorities also announced the results of a recent antitrust probe into Ant Group, Alibaba’s fintech arm
  • Regulators have ordered Ant Group to return to its initial payments services business model

Why did Alibaba open lower on Monday?

Alibaba Group’s share price sunk as much as 7.1% on Monday (28 December 2020) morning, after its board of directors approved the expansion of its share repurchase programme from US$6 billion to US$10 billion.

The share buyback scheme, which commenced earlier this quarter, will be effective for a two-year period through the end of 2022, the group said.

Following that, Alibaba’s Hong Kong shares opened at HK$219.20, before falling to a six-month low of HK$212 by 11:45 HKT.

Alibaba’s shares last traded at this level in June 2020. The stock is up 2.6% year-to-date, which is well below the year’s peak of 46.4% that was achieved on 28 October 2020, when shares had hit a price of HK$307.40.

What’s the regulatory update on Ant Group?

Last week, Chinese authorities began a probe into the e-commerce giant, as part of its antitrust clampdown on suspected monopolistic practices in the internet industry, signalling the start of a more involved approach to private sector dealings.

After sending officials to the group’s Hangzhou headquarters, the government on Sunday (27 December 2020) ordered Ant Group - the financial technology arm of Alibaba - to return to its roots as a payments services provider.

Such a move would put an abrupt halt to Ant Group’s rapidly growing and highly lucrative consumer loans and wealth management segments.

Ant Group’s Alipay first started out as a payment platform for Alibaba’s online shopping sites and apps. It then evolved beyond payments into loans provisions and investments, helping over 700 million users to secure small loans, invest savings and purchase investment products, including insurance.

Ant Group’s growing influence in the finance sector - a key pillar of the economy - had prompted the Chinese government to suspend what would have been the world’s largest initial public offering, citing ‘major issues’ with the listing.

Where next for Alibaba shares?

The outcome of the investigation did not surprise Raymond James analyst Aaron Kessler. He wrote in a client note that he believes ‘the most likely outcome is the termination of these exclusive relationships, though it is difficult to quantify the potential revenue impact’.

Kessler believes investors have priced in these concerns for now. As such, he reiterated a ‘strong buy’ call on the group’s US stocks, alongside a price target of US$330, which represents a nearly 50% upside from current price levels.

Meanwhile, UBS analyst Jerry Liu thinks the probe’s results will likely ‘cause investors to price in a more negative outcome’. He has a ‘buy’ rating on Alibaba and share price target of US$340.

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