Meme Stock Icon Cohen Buys Into Alibaba in Rare China Activism
(Bloomberg) -- Meme-stock investor Ryan Cohen has taken a stake in Alibaba Group Holding Ltd. and is pushing the e-commerce leader to buy back more of its shares, in a rare case of activism targeting a prominent Chinese firm.
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Cohen, who rallied individual stock investors to help propel shares of moribund companies like GameStop Corp., built up a stake worth hundreds of millions of dollars in the second half of last year, people familiar with the matter said, asking not to be identified discussing private communications.
The entrepreneur, who became an idol to amateur investors after championing well-known but languishing stocks like Bed Bath & Beyond Inc., contacted Alibaba’s board in August to make the case its shares were undervalued, the people said, confirming a report in the Wall Street Journal. That’s based on a view it can achieve double-digit sales growth and almost 20% growth in free cash flow over the next five years.
Such a performance would require a return to the scorching growth rates that China’s largest e-commerce company once routinely delivered — before it became a high-profile target of Beijing’s crackdown on technology giants. The government in 2021 forced Alibaba and peers like Tencent Holdings Ltd. to revamp business practices, wiping out top-line growth at a time Covid Zero curbs weighed on the economy. The company co-founded by billionaire Jack Ma posted a surprise loss in its latest quarter, as revenue again barely grew.
It’s also far from certain whether Cohen’s small stake relative to Alibaba’s $300 billion market value would carry any weight with a company that, since the crackdown, has been careful to align itself with government “common prosperity” initiatives such as philanthropy.
Just this month, a government entity took so-called “golden shares” in an Alibaba entity, which in theory allows the government to nominate directors or sway important company decisions and ensure longer-term control over the sector. Alibaba climbed 3% in Hong Kong Tuesday.
“While Ryan is influential and the news is positive for BABA, it’s unlikely to have much sway with the board” given Chinese authorities have that golden share, said Hao Hong, an economist with Grow Investment. “BABA has been going up, but not because of Ryan Cohen.”
More broadly, Cohen is getting in at a potential inflection point for the world’s No. 2 economy.
From Goldman Sachs Group Inc. to Morgan Stanley, a growing number of strategists have made bullish calls following Xi Jinping’s Covid Zero exit and vows to end a clampdown on the tech sector. The shifts have spurred a roughly 60% rally in the Hang Seng Tech Index since an October trough, a world-beating feat even though the gauge’s market value is still half of its February 2021 peak.
“Cohen’s entry can be broadly positive for Alibaba’s stock and given his wide following it should lift sentiment for Chinese tech generally,” said Jin Rui Oh, a director at Mariana UFP LLP in Singapore.
Cohen helped build Chewy.com into a pet supply giant that was sold for $3 billion, and then chaired a board committee tasked with transforming video-game retailer GameStop.
His appeal among investors was cemented by tweets hitting back at critics, including a poop emoji with an image of a Blockbuster store (in response to comparisons of GameStop to the largely defunct movie rental franchise) and an apparent screenshot from a Pets.com television ad (a nod to those who compared Chewy to the failed pet goods retailer).
It’s unclear when he took a specific interest in Alibaba, which for years symbolized the rise of Chinese internet technology and innovation. The entrepreneur last year tweeted cryptically, “I have a crush on China.” The activist has so far been silent on Alibaba itself.
But the entrepreneur is getting into a market driven by concepts many Western investors are less familiar with. During the crackdown, multiple agencies put in place sweeping regulations to control everything from content and social media to gaming and the gig economy — areas in which Alibaba is exposed.
Beijing however hasn’t publicly opposed shareholder returns. Tencent has been regularly buying back its own stock and distributing shares in major investees such as JD.com Inc. and Meituan to its backers. Alibaba itself in November approved a $15 billion expansion to an existing $25 billion buyback program, while extending the duration to 2025.
“Activist Ryan Cohen’s presence on Alibaba’s board might help raise public shareholders’ governance over the company’s strategic decisions, particularly as Beijing takes a stake in the internet giant,” Bloomberg Intelligence analyst Catherine Lim said.
Read more: As China Tech Stocks Roar Back, a New Normal Will Test Upside
--With assistance from Mayumi Negishi, Abhishek Vishnoi and Anders Melin.
(Updates with share action from the sixth paragraph)
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