Meme Stock Icon Cohen Buys Alibaba in Rare China Activism

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(Bloomberg) — Meme stock investor Ryan Cohen has bought 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 firm. China.

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Cohen, who rallied individual stock investors to help boost shares of moribund companies like GameStop Corp., amassed 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. private communications.

The businessman, who became an idol for amateur investors after defending well-known but languishing stocks like Bed Bath & Beyond Inc., contacted Alibaba’s board in August to argue that its shares were undervalued, the companies said. people, confirming a report on the Wall. Street newspaper. That’s based on a vision that it can achieve double-digit sales growth and nearly 20% growth in free cash flow over the next five years.

Such a performance would require a return to the blistering growth rates that China’s largest e-commerce company once routinely delivered, before it became a high-profile target of Beijing’s crackdown on tech giants. In 2021, the government forced Alibaba and peers like Tencent Holdings Ltd. to revamp business practices, scrapping top-line growth at a time when Covid Zero restrictions weighed on the economy. The company co-founded by billionaire Jack Ma posted a surprise loss in its latest quarter as revenue barely increased.

It’s also unclear whether Cohen’s small stake relative to Alibaba’s $300 billion market value would carry any weight for a company that, since the crackdown, has been careful to align itself with “common prosperity” government initiatives like the philanthropy.

Just this month, a government entity took so-called “golden shares” in an Alibaba entity, theoretically allowing the government to nominate directors or influence major company decisions and ensure long-term control over the industry. Alibaba rose 3% in Hong Kong on Tuesday.

“While Ryan is influential and the news is positive for BABA, it is unlikely that he will have much influence on the board,” given that the Chinese authorities have that golden spot, said Hao Hong, an economist at Grow Investment. “BABA has been rising, but not because of Ryan Cohen.”

More broadly, Cohen is entering a potential tipping 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 the departure of Xi Jinping from Covid Zero and vow to end the crackdown on the tech sector. The changes have prompted a rally of about 60% in the Hang Seng Technology Index from an October low, a global feat even though the gauge’s market value is still half its February 2021 peak.

“Cohen’s entry may be broadly positive for Alibaba shares and, given his broad following, should boost confidence in Chinese technology more broadly,” said Jin Rui Oh, a principal at Mariana UFP LLP in Singapore.

Cohen helped turn into a pet-supply giant that sold for $3 billion, and later chaired a board committee tasked with transforming video game retailer GameStop.

Its appeal among investors was cemented with tweets that responded to critics, including a poop emoji with an image of a Blockbuster store (in response to GameStop’s comparisons to the largely defunct movie rental franchise) and an apparent Screenshot of a TV ad. (a nod to those who compared Chewy to the failed pet supply retailer).

It is not clear when he specifically became interested in Alibaba, which for years symbolized the rise of Internet technology and innovation in China. The businessman last year tweeted cryptically: “I’m in love with China.” The activist has so far been silent on Alibaba.

But the entrepreneur is wading into a market driven by concepts many Western investors are less familiar with. During the crackdown, various agencies implemented sweeping regulations to control everything from content and social media to gaming and the informal economy, areas in which Alibaba is exposed.

However, Beijing has not publicly opposed shareholder returns. Tencent has been regularly buying back its own shares and distributing shares in major companies such as Inc. and Meituan to its backers. Alibaba itself approved a $15 billion expansion to an existing $25 billion buyback program in November, while extending the duration to 2025.

“The presence of activist Ryan Cohen on Alibaba’s board could help improve public shareholder control over the company’s strategic decisions, particularly as Beijing acquires a stake in the internet giant,” said Catherine Lim, a Bloomberg analyst. Intelligence.

Read more: As China tech stocks roar again, a new normal will test the upside

–With the assistance of Mayumi Negishi, Abhishek Vishnoi and Anders Melin.

(Updates with share action from the sixth paragraph)

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