Meme icon Cohen buys Alibaba in rare Chinese activism

(Bloomberg) — Meme-share investor Ryan Cohen has acquired 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 activity against a well-known Chinese firm.

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Cohen, who has rallied individual equity investors to help promote shares in moribund companies like GameStop Corp., built up hundreds of millions of dollars of stock in the second half of last year, said a person familiar with the matter, who asked not to be named. discussion of private messages.

The entrepreneur, who became an idol for amateur investors after championing well-known but languishing stocks like Bed Bath & Beyond Inc., contacted Alibaba’s board of directors in August to argue his stock was undervalued, the source said, confirming message in The Wall. Street magazine. This is based on the notion that the company could achieve double-digit sales growth and nearly 20 percent free cash flow growth over the next five years.

Such a performance would require a return to the staggering growth rates that China’s biggest e-commerce company once enjoyed on a regular basis before it became a notorious target of Beijing’s crackdown on the tech giants. In 2021, the government forced Alibaba and its competitors like Tencent Holdings Ltd. to rethink how they do business, wiping out revenue growth at a time when Covid Zero restrictions were weighing on the economy. The company, co-founded by billionaire Jack Ma, posted an unexpected loss in the latest quarter as revenue barely rose again.

But Cohen is approaching a potentially tipping point for the world’s No. 2 economy.

From Goldman Sachs Group Inc. to Morgan Stanley, a growing number of strategists are optimistic after Xi Jinping exits Covid Zero and vows to end the crackdown on the tech sector. These shifts have propelled the Hang Seng Tech Index up about 60% from its October low, a world record high, even though the indicator’s market value is still at half its February 2021 peak.

“Cohen’s entry could be broadly positive for Alibaba stock, and given his broad audience, this should lift sentiment for Chinese tech in general,” said Jin Rui Oh, director of Mariana UFP LLP in Singapore.

Cohen helped turn Chewy.com into a $3 billion pet products giant and then chaired a board committee tasked with transforming video game retailer GameStop.

Its appeal to investors was bolstered by tweets back to critics, including a poop emoji depicting a Blockbuster store (in response to GameStop’s comparison to a virtually non-existent movie-rental franchise) and an explicit screenshot from a Pets.com television ad. (a hint to those who compared Chewy to a failed pet salesman).

It’s unclear when he took particular interest in Alibaba, which for years has symbolized the rise of Chinese internet technology and innovation. Last year, the entrepreneur cryptically tweeted, “I’m in love with China.” The activist is still silent about Alibaba itself.

The entrepreneur enters the market with concepts that many Western investors are less familiar with. Just this month, a state-owned entity acquired so-called “golden shares” of Alibaba, which in theory allows the government to appoint directors or influence important company decisions and maintain long-term control over the sector.

“While Ryan is a powerful man and the news is positive for BABA, he is unlikely to have much influence on the board of directors,” given that this golden share is owned by the Chinese authorities, said Hao Hong, an economist at Grow Investment. “BABA is growing, but not because of Ryan Cohen.”

Beijing, however, did not publicly object to the return to shareholders. Tencent regularly buys back its own shares and distributes shares of large companies such as JD.com Inc. and Meituan, among their patrons. Alibaba itself in November approved an expansion of its existing $25 billion buyback program by $15 billion, while extending the duration until 2025.

“Activist Ryan Cohen’s presence on Alibaba’s board of directors could help increase shareholder control over the company’s strategic decisions, especially as Beijing acquires a stake in the internet giant,” said Bloomberg Intelligence analyst Katherine Lim.

Read more: As Chinese tech stocks rise, the new normal will be tested for growth

–With the assistance of Edwin Chan and Abhishek Vishnoi.

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