Wall Street is bullish on Alibaba’s overhaul with Morgan Stanley expecting the stock to double
Shares of Alibaba soared after the company announced a significant overhaul to split into six business groups . This move has attracted positive sentiment from major Wall Street banks, with Morgan Stanley saying that this restructuring could lead to a 100% upside in Alibaba’s share price. Alibaba’s restructuring will involve creating six independent business groups, each managed by its own CEO and board of directors, enabling them to pursue independent fundraising and IPOs, except for one division, which will remain wholly owned by Alibaba. Alibaba shares closed 15% higher Wednesday in Hong Kong, after trading higher by a similar amount on the NYSE on Tuesday. Morgan Stanley said that Alibaba shares, listed in the U.S. as BABA , are trading at a significant discount to their sum-of-the-parts valuation, and the restructuring could unlock this value. BABA 1Y mountain Analysts at the Wall Street bank said the stock’s nine times 2024 price-to-earnings valuation means the market has assigned zero value to the group’s non-core e-commerce businesses. Nearly all of the valuation comes out of Alibaba’s massive e-commerce and retail operations, according to Morgan Stanley. Morgan Stanley analysts led by Gary Yu wrote in a note to clients on Mar. 28. that they could “see potential for more than 2x upside to our bull case of US$200 per share.” “With gradual consumption recovery in China … and the potential catalyst of corporate restructuring, we reiterate BABA as our top pick in China Internet.” In a separate research note to clients on the same day, they added: “We believe the share price will rise in absolute terms over the next 60 days.” “We view BABA as a key beneficiary of China’s reopening and a proxy for inflows to China from global investors. We estimate that there is about an 80%+ (or “highly likely”) probability for the scenario.” The investment bank is not alone in its bullish view of Alibaba. Jefferies also believes the reorganization will allow different business units to respond quickly to market changes. According to the investment bank’s calculations, Alibaba shares currently trade at a “meaningful discount” to its sum-of-all-parts valuation. Before the restructuring plans were announced, Jefferies analysts expected Alibaba shares to rise by 22% to $120 a share. Analysts at Baird also told clients that the reorganization was a positive step toward increasing shareholder value. In contrast, CNBC’s “Fast Money” traders said they were hesitant as to whether the stock is now a good play. “There’s always been a lot of value here. In fact, you get Ant for free when you invest in this company. This is great news to me. This is a wait-and-see moment,” said Tim Seymour, founder and chief investment officer of Seymour Asset Management. Seymour added that he finds it “hard to believe” whether the spinoff comes with good intentions from the Chinese government. The overhaul of the Chinese technology giant comes amid continued struggles with growth over the past few quarters, with the company erasing roughly $600 billion in market value from its peak in October 2020. This is partly due to the Chinese government’s crackdown on technology companies, which has affected private technology businesses like Alibaba and Tencent . However, there are signs that Beijing is warming back up to technology businesses, seeking to revive economic growth in the world’s second-largest economy. Jack Ma, Alibaba’s outspoken and charismatic founder, who was out of the public eye and traveling abroad for several months, has returned to China, perceived as an olive branch from Beijing. —CNBC’s Michael Bloom and Hakyung Kim contributed to this report.
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