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Although Alibaba has spent more on stock repurchases than other companies in the tech sector, it has not improved its stock sales.
Alibaba Group Holding Ltd (HKG: 9988) shares surged 11%, following an extension of its buyback program from $15 million to $25 billion. The multinational technology firm made the buyback move in anticipation of Beijing’s internet lockdown ease. China operates with strict internet rules, from blocking content and websites to claiming it poses a threat to Chinese stability. The lockout resulted in a loss of $470 billion for the Hangzhou-based e-Commerce. The Alibaba share buyback program will run for two years, from now through March 2024. Alibaba also assigned Shan Weijian as the new independent director. Shan, the longtime investor in Chinese industries to replace Borje Ekholm, CEO of Ericsson, beginning on 31st of March.
The increased Alibaba buyback is reportedly one of the most important shareholder-reward strategies shareholders compared to other tech companies. Several organizations in China are recovering from the downturn triggered by internet scrutiny. The lockout lasted almost two years, affecting e-commerce, virtual education, and ride-hailing. China tech companies rarely adopt massive shareholder reward strategies such as cash or stock dividends and buybacks. However, the Beijing internet lockout pushed them to embrace a shift following the global era of intentional development. The buyback increase corresponds with Xi Jinping, and Vice Premier Liu made a formal promise to support the economy. Additionally, put an end to the crackdown on the tech industries “as soon as possible,” causing a momentous mobilization in Chinese shares. Alibaba’s shares closed at their highest in almost a month in Hong Kong on Tuesday and were up in pre-market trading in New York.
The $25 billion buybacks is Alibaba’s third sequence. The tech giant purchased 56.2 million depositary shares through its last buyback program, yielding $9.2 billion. The depositary shares are listed in the US and substitute for international organizations.
Is the 11% Surge in Alibaba Shares Resulting from the Buyback Positive?
In over one year, China’s stringent rules across the technology sector have steered fear among investors. Although Alibaba has spent more on stock repurchases than other companies in the tech sector, it has not improved its stock sales. In its December quarter 2021 report, despite the previous buyback, Alibaba reported its slowest growth. Its competitor Pinduoduo Inc. (NASDAQ: PDD) also reported revenue that missed projections for the third straight quarter.
CEO Daniel Zhang shared that Alibaba will prioritize retaining users instead of focusing on acquisition. The aim is to improve the trust of shareholders considering the loss in shares, with value of over 30% since its ATH in October 2020. The switch emphasizes a vast awareness among competitors. For instance, start-up companies like PDD and ByteDance Ltd are drawing users from leading organizations like Alibaba and Pinduoduo Inc., Even as the Chinese economy struggles to recover during punishing Covid-Zero lockdowns. It was a significant decision for the company, given its heightened investments in cloud and e-Commerce.
Notably, Alibaba’s shares do not determine the company’s value considering its expansion plans and collective financial security.