Saturday, 2024 April 13

Was Jack Ma “buying the dip” in Alibaba, or is there something more?

Jack Ma and Joseph Tsai, the co-founders of Alibaba Group, have emerged as the two largest shareholders of the technology giant they co-founded in 1999, after aggressively acquiring its tumbling shares on the stock markets in the US and Hong Kong.

According to South China Morning Post, Ma, who retired as Alibaba’s executive chairman in 2019, bought around USD 50 million of the Chinese company’s stock in the fourth quarter last year, raising his stake beyond the 4.3% reported at the end of 2021. This makes him the largest single shareholder of the company, according to unnamed sources cited by the media outlet.

Tsai, who took over Alibaba’s chairmanship from Daniel Zhang in September last year, purchased 1.957 million shares for USD 151.7 million in the same quarter (Q4 2023) through Blue Pool Management, his family investment vehicle. Accordingly, Tsai has become the second largest shareholder, having previously owned 1.4% of Alibaba’s shares last year, according to the company’s annual report.

The combined shareholding of the two co-founders now eclipse SoftBank Group, which has been reducing its stake in Alibaba since the company’s 2014 IPO. The investment firm, led by Masayoshi Son, has largely reduced its stake in Alibaba through forward contracts, cutting it from around 7% in December 2022 to approximately 2% by March last year. This was further diluted to less than 0.5% as of May 2023, according to Morgan Stanley.

A show of support for his (former) languishing empire

Ma and Tsai’s acquisition of Alibaba’s shares comes at a tumultuous time for the company.

The warning bell first sounded toward the end of November 2023, when Alibaba’s market value reportedly dipped below PDD Holdings for the first time ever, according to data compiled by Bloomberg.

Having dominated the internet industry for over a decade, primarily under Ma’s leadership, this seemingly inconceivable shift became possible after Alibaba failed to arrest the dip in its market value, while PDD, buoyed by the successes of Pinduoduo and Temu both domestically and internationally, was steadily becoming more popular on the capital market. This dethroning was largely formalized earlier this year, when PDD’s market capitalization was noted to have consistently surpassed that of Alibaba’s, making it de facto the most valuable US-listed Chinese company.

Elsewhere, Lazada, which is Alibaba’s main e-commerce company in Southeast Asia, has been struggling to keep up with the industry’s tempo in the region. Since Alibaba’s acquisition of the company in 2016, it has necessitated multiple capital infusions to develop new strategies, in a bid to turn profitable. Alibaba last injected USD 634 million in Lazada in December 2023, adding to a total of USD 7.47 billion that it has hitherto invested in the company.

Lazada, Alibaba’s flagship bet in Southeast Asia markets.

Despite the major financial commitment, Lazada has yet to discover consistent business success, having to lay off hundreds of staff at the start of this year as part of restructuring efforts to optimize its operational efficiency. While Shopee had previously resorted to a similar approach, the Sea-owned competitor is now holding a steadfast position as market leader amid the mayhem Lazada is experiencing.

Meanwhile, newer player TikTok has extended its foothold in various parts of the region, most notably in Indonesia where it has forged a partnership with local player Tokopedia, having recently acquired a controlling stake in the company. Temu, which is part of PDD, has also made its first foray into the region, entering Malaysia and the Philippines, intensifying competition further.

On home ground, Ele.me, Alibaba’s food delivery and local lifestyle service provider, has seen its operations affected by persistent rumors about a potential acquisition by ByteDance’s Douyin, which is the Chinese equivalent of the short video platform TikTok.

Even Taobao Tmall Commerce Group (also known as Taotian Group), which oversees the operations of Taobao and Tmall, has entered a sluggish phase of growth, hitting various bottlenecks as its user traffic has seemingly peaked while struggling to meet changing user demands.

Efforts to capitalize on new opportunities have seen limited success as well. For example, the tech giant is apparently out of cadence with the pace of artificial intelligence development. Despite the development of Tongyi Qianwen (Qwen), its large language model (LLM), adoption has been relatively modest, overshadowed by foreign rivals like OpenAI’s ChatGPT while lacking differentiation from domestic counterparts such as Baidu’s Ernie Bot and Tencent’s Hunyuan.

Photo of Daniel Zhang, former chairman and CEO of Alibaba Group and former CEO of Alibaba Cloud Intelligence Group, unveiling Tongyi Qianwen, the company’s large language model, to the public on April 11, 2023. A 2.0 iteration of the LLM was later launched in October the same year, with purportedly enhanced capabilities compared to the inaugural version. Photo source: Alibaba Group.

Noting the lackluster performance of Alibaba in the aforementioned areas, Ma and Tsai’s purchase of Alibaba’s shares can foreseeably be seen as a strong display of confidence in the company’s ability to rebound from the challenges it is currently facing. Notably, this move has not gone unnoticed, with Alibaba’s market share surging approximately HKD 100 million when news first broke. Market observers believe that this could also have a spillover effect on the outlook of other Chinese technology companies in the capital market.

Is there a greater significance behind Ma’s purchase of Alibaba’s stocks?

Considering Ma’s stature, some observers may wonder about the significance of his involvement in the latest move: was he merely “buying the dip,” or does the purchase foreshadow a larger strategic move yet to unfold?

While some parallels exist between this instance and the return of Steve Jobs to Apple in 1997, there are several signs that downplay the possibility of a fairytale return for Ma to an active role at Alibaba.

For one, Ma has been mostly removed from Alibaba’s activities since he retired from the company’s board in 2019. Following his departure, his touchpoints with Alibaba have been relatively limited, save for a few notable occasions. Two examples of these occurred in June and November last year:

  • In June 2023, Ma held an informal meeting with e-commerce executives, advising them to refocus on Taobao amid China’s economic slowdown.
  • Later, in November 2023, Ma took to an internal message board to rally Alibaba’s workers, urging them to help the company “correct its course” and expressing confidence that Alibaba can rediscover its success with determination and hardwork. “Every great company is born in a winter,” Ma wrote in response to a staff post at that time.
Jack Ma, having stepped away from an active role at Alibaba and its subsidiaries since 2019, remains a lifetime partner in the Alibaba Partnership. This group of executives is tasked with shaping the company’s strategy and culture.

Aside from these occasional encounters, Ma has been more actively involved with Yimiba, a group of entities which he de facto owns. His involvement in this new venture traces back to 2018, when, in his final open letter to shareholders as chairman of Alibaba’s board of directors, he made public his intention to devote more time to education, charity, and the environment.

His words were largely corroborated by subsequent activities he publicly partook in. While not commonly sighted in public since his exit from Alibaba, Ma has, on occasion, been spotted visiting agriculture-related facilities and participating in activities related to agricultural and environmental issues:

  • In September 2021, photos of Ma visiting the county of Pinghu in Jiaxing, Zhejiang were distributed online. These photos depicted him visiting several agricultural greenhouses as well as Alibaba’s local digital agriculture facility. He also paid visits to Dezhou and Jinan the following month to look into various smart agriculture projects. Ma was also sighted in Spain and the Netherlands, where he examined related technologies.
  • During his six-month stint in Japan, Ma studied marine farming technology at Kindai University and the Tokyo University of Marine Design and Technology. In May last year, he was appointed as a visiting professor at the University of Tokyo, with a research focus on sustainable agriculture and food production.
  • Ma’s recent activities have largely been intertwined with ventures under Yimiba, including Majia Kitchen, a business that reportedly focuses on pre-packaged meals, agricultural product processing, and wholesale.

Moreover, it’s worth noting that Alibaba had already been undergoing a fresh round of organizational restructuring. In September last year, Eddie Wu (also known as Wu Yongming) replaced Daniel Zhang as group CEO, who had announced his intention to step down in June. Wu subsequently took over the reins at Taotian Group from Trudy Dai to gain closer oversight of Alibaba’s e-commerce operations. Ma’s return in any formal capacity could risk throwing Alibaba into internal disarray.

Regardless, the ball is now in Alibaba’s court to consolidate and synergize its efforts, in a bid to achieve better outcomes. It’s clear the odds are major. As Ma once said, industry leaders can quickly fall if they become complacent and careless. Alibaba may once have held a deep-seated leading position in China, achieved over the years under the leadership of Ma and his peers, but getting dethroned by PDD as the market leader is an unignorable sign that it is no longer untouchable.

Alibaba must double down on its efforts in the right areas, and quickly, to relocate success, in order to fulfill its vision of lasting for 102 years.

36Kr Global Writers
36Kr Global Writers
The tech ecosystem is roaring. Unicorns valued at billions of dollars have emerged worldwide, while venture capital and strategic investors are constantly on the lookout for the next big thing. 36Kr Global is committed to establishing ties between global stakeholders and providing the most vital information about China’s tech scene and capital markets.
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