Alibaba surges for more share buyback program
Gary Cripps 
Alibaba Group Holding Ltd. surged more than 11% after the Chinese e-commerce giant said it will increase its share buyback program to $25 billion. This comes as the company looks to add new incentives for existing shareholders and respond to investor demand for such a move. The news marks an increase from the previous level of up to $10 billion in its 2018 annual report. In addition, it highlights a continuation of positive sentiment towards the stock, exceeding its trading range for six consecutive days.
The chairman of Alibaba, Jack Ma, said that shareholders prefer share repurchases to increased dividends “as it shows confidence in our long-term prospects”. This signals an opportunity for companies like Alibaba as these moves improve cash flow and enhance returns on equity capital. In addition, share repurchases demonstrate management’s greater confidence that their stock is undervalued than other opportunities in different markets or sectors. Ultimately, the decision reflects a focus by management on long-term shareholder value growth and optimized use of shareholder resources.
Overview of Alibaba
Alibaba Group is a Chinese multinational technology company specializing in e-commerce, retail, internet, and technology. Founded in 1999, it operates as a holding company with a twelve year history as one of the world’s largest commerce companies.
This morning (November 17, 2020), the stock surged more than 11% after the company announced an increase in its share buyback program to $25 billion. Let’s get into more detail about Alibaba and why its stocks have surged.
History
Since its founding in 1999, Alibaba has become one of China’s largest and most important companies. It started as an online marketplace connecting suppliers with buyers, but it has since become a major global force in various business areas.
The company was initially founded by Jack Ma, now Chairman of the board of directors and Executive Chairman. Ma and his team established Alibaba as one of the earliest e-commerce platforms in China. However, it didn’t take off until they expanded into other arenas such as cloud computing, digital payments, entertainment services and retail sales.
Alibaba quickly became a dominant force on the Chinese internet. With various services catering to consumers and businesses across different industries, it gained an impressive user base with over 700 million active users across all their sites by April 2020. This makes it not only China’s largest e-commerce platform, but also one of the biggest online marketplaces in the world.
As a result, Alibaba went public on September 19th 2014 on the Hong Kong Stock Exchange (HKEX) after raising $25 billion from its IPO at $68/share – making it the largest IPO ever completed. The stock then listed on July 15th 2015 on The New York Stock Exchange (NYSE). Since then, its shares have continued to climb with considerable successes such as acquiring Lazada group and launching various venture funds to help start-ups grow their businesses throughout Southeast Asia.
As of August 2020, Alibaba had once again increased its buyback program to $25 billion, which provided further evidence to investors that this company would remain an important player in China’s economy and globally for many years.
Business Model
Alibaba is a Chinese e-commerce company that provides consumer-to-consumer (C2C), business-to-consumer (B2C) and business-to-business (B2B) sales services via the Internet. It is one of China’s largest online marketplaces and operates like eBay and Amazon.
The company’s main business model consists of online retailing, cloud computing, digital media and entertainment, and artificial intelligence technology. It also offers an online payment system which facilitates transactions between buyers and sellers from all parts of the world. In addition, its platform enables small businesses to make their products available worldwide.
The company has developed into digital media with its Alibaba Pictures Group, allowing users to purchase movie tickets on its website or mobile app. The group also invests in digital marketing initiatives such as setting up a digital advertising platform that allows digital marketers to place advertisements on their websites or applications. Additionally, the group runs an ecommerce logistics enterprise to provide efficient delivery services for its clients in various parts of China.
Alibaba has been increasingly investing in new technologies and research & development investments to consolidate its competitive edge in the industry. It has seen growth since 2017 due to strong consumer adoption in China. With increased demand for products it hosts on its online platforms, Alibaba has achieved steady revenue growth amid expanding margins resulting from cost efficiency initiatives undertaken by management teams at each product level.
Shares of Alibaba Group Holdings surged more than 11% after the Chinese e-commerce giant announced it would increase its share buyback program to $25 billion. This was the largest program of its kind by an Asia-based company, and it indicates the confidence that Alibaba has in its growth prospects.
In this article, let’s look at the share buyback program and what it could mean for investors.
Purpose
A share buyback program, also known as a stock repurchase plan, is a program a company implements to purchase its shares from the open market to reduce the number of outstanding shares. This can have several economic benefits for both investors and the company itself.
Put simply, a share buyback signals to investors that management believes their company’s stock is undervalued and should be purchased instead of new investments or other strategic initiatives. Additionally, when a company buys back its stock, it increases earnings per share (EPS) since the size of the total pie (shares outstanding) has decreased. Still, total earnings remain the same (or increase due to higher profits).
The purpose of Alibaba’s recent 11% surge was linked to its announcement that they would increase their share buyback program from 5 billion dollars to 25 billion dollars. This move indicates that Alibaba’s management feels confident about their financial situation and is willing to invest some of their overflow profits into their stocks to increase shareholder value. In addition, buying back their stocks reduces dilution, increasing EPS if profits remain the same or increase due to higher sales revenues. All these effects could be seen with Alibaba’s surge in stocks prices on market speculation surrounding the news of an expanded shareholder program.
Benefits
Share buybacks are a popular strategic choice for many companies looking to increase shareholder value. This form of shareholder initiated corporate restructuring is often used as a substitute for dividends, allowing the company to better manage cash balances while offering financial advantages to shareholders. Although risks are associated with share buybacks, they can effectively improve stock prices and create value through greater returns on invested capital.
Benefits:
-A share buyback can help enhance shareholder value by increasing earnings per share (EPS) over time. By buying up its shares, the company reduces its outstanding shares, thus increasing the profits each remaining share commands.
-In addition to improving EPS, share buybacks also have other benefits such as potentially increasing dividend yields, reducing volatility in the stock market and enabling flexible tax options for investors.
-Share buybacks can also be leveraged to help companies reward shareholders without diluting existing equity or issuing more stocks than necessary. Lastly, companies may use these programs to increase investor confidence in their underlying businesses and overall financial success.
Recently, Alibaba’s share price has surged over 11% after the company announced it was increasing its share buyback program from $5 billion to $25 billion. This move has shown investors that Alibaba continues focusing on its financial stability. Furthermore, an increase in the buyback program could potentially increase share value and reward shareholders.
Let’s look deeper into the details of Alibaba’s buyback program and how it could affect investors.
Amount
Alibaba Group Holding Ltd. has surged more than 11% after it increased its share buyback program to $25 billion from $10 billion. The increased buyback amount is the company’s largest-ever undertaken at one time. Alibaba Group faces increasing pressure from Chinese regulators over its technology and market dominance.
The Chinese e-commerce giant expects to use up to $20 billion to repurchase its American depository shares (ADSs) on the New York Stock Exchange and up to $5 billion for repurchase its H shares listed in Hong Kong. The amounts break down into 500 million ADSs and 6 billion H shares, which will be bought back over the next two years in the third quarter of 2020.
The buyback is an attempt by Alibaba’s management team to boost the company’s share price and affirm their confidence in their stock—indicating that they plan on holding onto their position long-term rather than selling off shares. By investing so heavily in a buyback program, Alibaba is likely hoping that investors will be encouraged to hold onto their shares or add more, contributing positively towards growth and stability within their stock prices.
Alibaba’s announcement of a $25 billion share buyback program was met with high expectations from investors and had a major impact on the company’s share price. Shares of Alibaba Group Holding rose more than 11% in premarket trading on October 28, 2020 after the Chinese e-commerce giant announced its latest buyback plan.
The announcement caused Alibaba shares to surge to a record closing high of $332.80 at the end of trading that day. The stock has risen another 9.4% since November 6, 2020, with its five-day gain amounting to nearly 17%. This surge in value indicates that investors are confident about the company’s long-term potential and current capabilities. Additionally, this move reinforces the view that Alibaba’s moves toward expanding its domestic and international capabilities will likely bear fruit for shareholders in the coming years.
Ultimately, this latest move to buy back stock reaffirms investor expectations that Alibaba is dedicated to creating value for shareholders and is an impressive gesture on the part of one of China’s largest companies by market capitalization.
Conclusion
Ultimately, Alibaba’s decision to increase the size of its share buyback program is seen as a positive one. The move reinforces investor confidence in the company and increases shareholder value. Furthermore, the increased repurchase program will likely benefit institutional investors—a large percentage of shareholders of Alibaba—by reducing overall outstanding shares, helping support Alibaba’s stock price.
In conclusion, although there are some risks associated with share buybacks, with its $25 billion program, Alibaba appears to be taking steps to minimize those risks.
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