Alibaba’s shares listed on the Hong Kong stock exchange saw a 3% rise on Monday, raising hopes that the prolonged scrutiny of its financial subsidiary, Ant Group, is nearing its end. Chinese regulators recently imposed a fine of 7.12 billion yuan ($985 million) on Ant Group, potentially signaling the conclusion of Beijing’s crackdown on domestic technology companies. Ant Group’s initial public offering was halted in late 2020 due to non-compliance with listing requirements. In 2021, Alibaba was also fined $2.8 billion for antitrust violations, while Meituan, a food delivery giant, faced a penalty of 3.44 billion yuan for breaching anti-monopoly regulations. Didi, a ride-hailing giant, was penalized with 8.02 billion yuan in 2022 for violating data security regulations. The recent announcement by Chinese regulators indicates that most of the outstanding issues related to the financial operations of platform companies have been resolved, and the domestic technology industry will witness “normalized supervision.”
Analysts Express Caution Amid Regulatory Developments
Although Alibaba’s shares experienced a positive surge, analysts remain cautious about the future regulatory landscape. In March, Alibaba announced a significant restructuring of its businesses, prompting some analysts to speculate that the Chinese government may loosen its control over the domestic technology sector. However, Oshadhi Kumarasiri, an equity analyst at LightStream Research, suggests that while regulators have addressed immediate concerns, they have also emphasized the need for broader industry-wide regulations to effectively oversee the entire sector. Kumarasiri warns that premature optimism regarding the conclusion of regulatory scrutiny may be unfounded, as the new regulations could be equally stringent. Ronald Wan, the non-executive chairman of Partners Financial Holdings, believes that the growth prospects of both Alibaba and Ant Group will be severely restricted in the future. Wan suggests that Ant Group may operate more like a state-owned bank in China, despite the resolution of regulatory disputes.
Positive Outlook for Alibaba Following Ant Group’s Fine
Shawn Yang, the managing director of Blue Lotus Research Institute, holds a more positive view of Alibaba following the fine imposed on Ant Group. Yang calculates that Ant Group’s value could reach $89 billion, with Alibaba’s stake amounting to $29.4 billion, based on their 33% ownership in Ant Group. This valuation surpasses Bloomberg’s estimate, which ranges from $22 billion to $57 billion. Yang compares Ant Group to PayPal and argues that with the regulatory uncertainties surrounding Ant Group resolved, it should be valued at a multiple more similar to that of PayPal, indicating potential upside to Bloomberg’s valuation.
Ant Group’s Share Buyback Raises Questions
Ant Group recently announced a share buyback that values the company at $78.53 billion, a significant decrease from its $315 billion valuation during its failed listing attempt in 2020. Kumarasiri raises concerns about the buyback, particularly if the company had plans for an imminent initial public offering (IPO). The company’s justification for the buyback, which includes providing liquidity to existing investors and attracting or retaining talented individuals through employee incentives, seems unnecessary if an IPO were on the horizon. The buyback raises doubts about Ant Group’s future intentions and plans for going public.
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