What's your take on this or break up? And is this a game changer for Alibaba?
Yeah. Well, the market has spoken, right?
The share price is up 15 percent last night.
I think investors have always known that Alibaba is cheap
on a global level, is trading at about 10 times forward PE even after the rally
last night. And if you remove cash and investments,
it's probably trading at around six to seven times.
That's barely paying for its core business, which I think even though it's
kind of ex growth can easily be trading at about five or six times on his own,
which means the rest of it's businesses, like Stephan pointed out, are severely
undervalued or maybe even free for an investor who's buying into Alibaba at
current prices today. So if the break up, I think valuation
transparency is key. And of course, there will be details on
how these business units will have to work with each other, that the loss of
synergies and cost transfers and et cetera, which will have to be worked
out. And again, I think something like this
is going to take time to come. Appeals don't happen overnight.
So we'll have to see what they say.
This is Stephen Engle here. Obviously, the listing status here in
Hong Kong and in New York, they're going to remain unchanged for right now.
But are there particular divisions among those six that you say is a slam dunk
for an IPO? I think clearly cloud is the one that
stands out right for a couple of reasons.
I think cloud as a business is perhaps the most disparate or distinct from
Alibaba, Baba's core business, unlike the rest of the business units, local
services, logistics, which arguably are more tight to its core China commerce
business cop stance apart. And it's it's mature and it's ready.
And also cloud. Even though growth has been depressed
over the past two years because of Covid and implementation delays,
it's got actually a much faster potential growth trajectory in the next
couple of years with the reopening and with China's digitization still under
way. So as a standalone unit, it can be worth
a lot more than what it is today embedded into Alibaba.
But are those multiples razor are really dependent on investor sentiment?
And I harken back to kind of previous spin offs that GDP Tenzin has done as
well. They haven't really quite match what
analysts price targets have been. How is this any different
getting to a certain extent of valuation?
Multiples depend on sentiment, especially since only the core
e-commerce business is making money and the rest of Alibaba ISE business units
are all loss making and hence they will have to depend on price to sales
multiples, which can be numbers which are plucked from
the air. Having said that, even if you put in
very conservative multiples today, there is plenty of upside.
Like I said, almost half or maybe slightly above half of Alibaba market
cap is made up of net cash and investments.
So at today's level, none of these units are getting priced at all.
They may sent Stephen Engle here do put any weight into the argument that,
look, we have a new premier. We have Lee Chong.
He is the former Communist Party chief in Georgia.
He was there when Ali Baba was coming up.
He has talked a lot about supporting the private sector.
Is this a turning point? As far as reading the tea leaves from
Beijing that they are truly going to be supporting, surely they gave the stamp
of approval for this restructuring. If they didn't order it themselves.
I personally, I think it's hard to read the tea leaves when it comes to trying
to figure out what the Chinese government wants
the government. The market's perception is clearly that
China is more pro-business and is shown his pro-business side when he was in
Shanghai. But what we do know and the facts point
to it is that the government needs to boost the economy this year.
And part of boosting the economy and driving consumption also involves
boosting employment and incomes. And that big tech platforms, though,
which have been under pressure over the last couple of years and shedding staff
are key to helping the government boost employment.
So from that angle, I think it is possible to assume that the government
can be more supportive of these platforms going forward.