Jack Ma, founder of Alibaba Group Holding, at the company’s annual party in 2017.
STR / AFP through Getty Images
Text size
“He may have been caught by the party, and he may be in a dark room right now,” the head of a Chinese investigation group told me last week. He was talking
Alibaba
founder Jack Ma, the richest man in China, unseen a few weeks ago.
By “party,” he didn’t mean the festive type, like Alibaba’s annual party in 2017, when Ma, dressed as a Michael Jackson with a gold mask, changed onto a motorcycle on a staircase, then put away for some dance moves – mostly pelvic squats. It meant the ruling Communist Party of China, which Ma has crossed, and whose rulers have now come after his rulers.
That sounds bearish. But it’s 2021: Bond yields are scarce, Bitcoin is just on top of $ 40,000, and investors are snooping like Michael Jack-Ma to anything with fast-growing revenue growth . Yes, shares of Alibaba Group Holding (ticker: BABA) are for sale. But in a poll by FactSet, a staggering 53 out of 54 analysts covering Alibaba now say it’s a good time to buy. Is it?
Let’s start with some positive things. Alibaba is an impressive company, with an active customer base that is more than twice the size of the U.S. population. It has more control over e-commerce in China than
Amazon.com
(AMZN) is in the US, and more profitable than either Amazon or
Walmart
(WMT). Its main retail businesses are Alibaba.com, which connects manufacturers with wholesale buyers worldwide; Taobao.com, an interface for buyers and sellers, as
eBay
(EBAY); and Tmall.com, a marketplace for global brands such as
Nike
(NKE).
“There are these technical companies in China that are not … copies of the US equivalent,” said Leland Miller, CEO of China Beige Book, the researcher I mentioned. “They are truly innovative and amazing.”
Alibaba’s support side businesses cover cloud computing, shipping logistics, and more. He created Alipay to build trust in online payments, then discontinued in 2011. Today, Alipay goes by the name Ant Group, much larger than
PayPal
(PYPL), and has moved into lending, investment and insurance.
Ant Group was ready to go public last year. Some bulls had forecast a market value of $ 300 billion, compared to a recent $ 617 billion for Alibaba, and $ 414 billion for
Chase JPMorgan
(JPM). Alibaba owns a third of Ant Group.
In November, the stock offer was abruptly canceled. Near Christmas, Chinese regulators announced a crackdown on trust in Alibaba, as well as a look at setting new rules for Ant Group.
Ma, valued at more than $ 40 billion, has been losing the appearance of recorded television ever since. He has not appeared in public since criticizing Chinese state banks for working with a “pawnshop” in a speech in October.
“Jack is in a lot of trouble, both personally and with his company,” Miller says at China Beige Book. He may have “wisely kept his head down,” or he may have been arrested for “disobedience to the party,” Miller says.
Alibaba did not immediately answer questions about Ma’s whereabouts.
It’s not just about appearance. Alibaba’s financial businesses have long had a free hand to pay investors more than China’s tightly controlled banks, Miller notes.
“All this screaming money would come out of the state system … and destroy the cunning state bankers,” he says. “This is Jack Ma, making a fortune, stealing their investments, having nothing to do.” Banks involved in declining investments have shouted at Beijing.
Miller, formerly a corporate body a lawyer advising hedge funds on China, he founded China Beige Book in 2010 to address two problems. Official economic data coming out of China is not reliable or complete, he says. Its staff collects data by analyzing Chinese companies: private and state-owned, large and small, coastal and rural, domestic and global.
What will they see now? China’s official story of recovering from an economic downturn is unmistakable, the unadulterated numbers confirm, but the recovery is not particularly strong, and is driven too much by increased production. , and there is not enough private housing demand.
Ma’s bizarre case highlights the unique risks of investing in China. The government can change the rules quickly, and without warning. If it could reappear weeks or months from now, with Alibaba suddenly restructured and Ant Group under new government control.
There is a particular risk for investors who buy the shares listed in the US. They get parity in an offshore vehicle that invests in Alibaba, not in Alibaba itself. “There is nothing to say that the Chinese government could not just break that link,” Miller says.
Trade tensions between the U.S. and China could one day leave China looking for new avenues for retaliation, including with U.S. investors in Chinese companies. So how does trade fare go under the new US administration?
There is a political sentiment on both sides against diminishing relations, Miller says, adding that “tensions … are not just here to stay, but are going to get worse. ”
Where will that leave Alibaba investors? One of the rarest things in the investment universe is now a fast-growing company trading at a moderate price. Tesla is approaching a quarter of an hour of growth in car haulage, but will trade at more than 100 times the free cash flow that the company is expected to generate years from now. -out – in 2024. Amazon is looking at a more affordable price at 15 then the projected cash flow for the year. Estimates that are not far off are just educational estimates, of course. However, Alibaba is getting closer to 11 hours of free money that will be generated in 2024.
That’s a terrible discount for such a company that is hitting the world. But it’s best to wait for Ma to reappear, with or without his dance shoes, before deciding whether the worth of shares is still at risk.
Write to Jack Hough at [email protected]. Follow him on Twitter and a subscription to his podcast Barron’s Streetwise.