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Could Alibaba Group Holding Limited's (NYSE:BABA) Investor Composition Influence The Stock Price?

Simply Wall St

The big shareholder groups in Alibaba Group Holding Limited (NYSE:BABA) have power over the company. Institutions often own shares in more established companies, while it's not unusual to see insiders own a fair bit of smaller companies. Warren Buffett said that he likes 'a business with enduring competitive advantages that is run by able and owner-oriented people'. So it's nice to see some insider ownership, because it may suggest that management is owner-oriented.

With a market capitalization of US$443b, Alibaba Group Holding is rather large. We'd expect to see institutional investors on the register. Companies of this size are usually well known to retail investors, too. In the chart below below, we can see that institutions own shares in the company. We can zoom in on the different ownership groups, to learn more about BABA.

See our latest analysis for Alibaba Group Holding

NYSE:BABA Ownership Summary, October 8th 2019

What Does The Institutional Ownership Tell Us About Alibaba Group Holding?

Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.

We can see that Alibaba Group Holding does have institutional investors; and they hold 51% of the stock. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. When multiple institutions own a stock, there's always a risk that they are in a 'crowded trade'. When such a trade goes wrong, multiple parties may compete to sell stock fast. This risk is higher in a company without a history of growth. You can see Alibaba Group Holding's historic earnings and revenue, below, but keep in mind there's always more to the story.

NYSE:BABA Income Statement, October 8th 2019

Since institutional investors own more than half the issued stock, the board will likely have to pay attention to their preferences. Alibaba Group Holding is not owned by hedge funds. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.

Insider Ownership Of Alibaba Group Holding

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company management answer to the board; and the latter should represent the interests of shareholders. Notably, sometimes top-level managers are on the board, themselves.

Most consider insider ownership a positive because it can indicate the board is well aligned with other shareholders. However, on some occasions too much power is concentrated within this group.

We can see that insiders own shares in Alibaba Group Holding Limited. The insiders have a meaningful stake worth US$24b. I sometimes take an interest in whether they have been buying or selling.

General Public Ownership

With a 16% ownership, the general public have some degree of sway over BABA. This size of ownership, while considerable, may not be enough to change company policy if the decision is not in sync with other large shareholders.

Public Company Ownership

It appears to us that public companies own 26% of BABA. We can't be certain, but this is quite possible this is a strategic stake. The businesses may be similar, or work together.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Alibaba Group Holding better, we need to consider many other factors.

I like to dive deeper into how a company has performed in the past. You can access this interactive graph of past earnings, revenue and cash flow, for free.

But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter future.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.