Corrective Bearish Scenario: Sells below 38680 with TP1: 38560, TP2: 38500, TP3: 38432 Continuation Bullish Scenario: Buys above 38816 with TP: 39000
Alibaba is Getting Strong
2022-11-22 • Updated
Alibaba has raised its buyback to $25 billion as crackdowns ease and due to that, its shares jumped more than 11%, the highest in about a month.
Why is it interesting?
Until recently, Chinese technology corporations have rarely resorted to large shareholder return programs such as dividends or share buybacks. However, the country's largest corporations have resigned themselves to a new era of cautious expansion, after nearly two years of brutal internet repression that quickly swept everything from e-commerce to taxi bookings and online education.
Alibaba has increased its buyout arsenal for the third time since the tech crackdown began in Beijing in late 2020 — twice in less than a year. It purchased $56.2 million of the US depository shares in a previously announced share buyback program for approximately $9.2 billion. It means it has spent more on buyback than any other tech firm has since the sector's downturn began. However, this did little to increase the fortunes of the shares.
Additionally, the company is facing increasing competition from other e-commerce groups like Pinduoduo and JD.com and emerging platforms including ByteDance's Douyin, as well as a TikTok subsidiary in China that allows influencers to sell products via streaming content. In addition, Alibaba was fined a record $2.8 billion last year for abusing its market power.
What’s happening lately with Alibaba?
Shares of Alibaba Group Holding Ltd. rose 13% on Tuesday in New York after the company boosted its share-buyback program to $25 billion, raising hopes that Beijing is easing an online crackdown that has wiped out $470 billion of the e-commerce giant's value. The board of directors has approved the program, which will run for two years until March 2024, the company said in a statement.
Alibaba's increased buyback represents one of the largest programs to reward shareholders in China's giant internet industry. It also coincides with a reassessment of sentiment after Xi Jinping and his deputy, Liu He, vowed to support the economy and markets and stop the crackdown on the tech sector "as soon as possible", which triggered a historic rise in Chinese stocks.
What to wait for?
Growing geopolitical risks associated with Russia's invasion into Ukraine, the US moves to start the process of delisting Chinese stocks in New York, and the intensifying Covid outbreak on the mainland have also fueled market volatility in recent weeks. However, Chinese e-commerce group hopes to boost the investors’ confidence after a slowdown in growth and a crackdown in the tech sector, sending the company's stock to a multi-year low of $73.28.
Now, the current relatively low share price has attracted high-profile value investors such as Berkshire Hathaway vice chair Charlie Munger. Still, the company has yet to overcome the skepticism of many Wall Street analysts. On March 22, Alibaba shares closed at their near-month high in Hong Kong, while the US depositary receipts traded at $113.66 at 9:47 am in New York. Technically, the price should get above $120 to reverse the downtrend.
To sum up, despite various obstacles, it seems that Alibaba can cope with them. According to the latest earnings report, Alibaba's operating cash flow remains very attractive and robust, exceeding $30 billion a year.
Bullish Scenario: Buy between 17515 and 17600 with TP1: 17681; TP2: 17720 intraday, and TP3: 17750 / 18000 in extension. Bearish Scenario in case of breaking the buying zone: Sell below 17500 with TP1: 17469; TP2: 17421, and TP3: 17358 in extension.
Primary Scenario: Sales below 16767 / 16838 (wait for a return to these levels) with targets at 16615.70 and 16513.72 as an extension. Alternative Scenario: Buys above 16730 with targets at 16766 and 16838 as an extension.
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