Share Buybacks Bring Mixed Results for Smart Share Global, Cloopen

Key points:

• Smart Share Global’s shares surged after it announced a $50 million stock buyback plan, while Cloopen’s were largely unchanged after it separately unveiled a similar plan
• Purchasing by a major institutional buyer may have fueled Smart Share Global’s surge, as such big buyers look for bargains among depressed Chinese shares  

By Doug Young

It could well be called “A Tale of Two Buybacks.”

A day before China heads into its weeklong Oct. 1 holiday, two of its New York-listed tech companies have announced new share buybacks in a bid to breathe fresh air into their battered stocks. But while one of those plans produced spectacular results for shared energy bank operator Smart Share Global Ltd. EM, the other had little or no effect for cloud services provider Cloopen Group Holding Ltd. RAAS.

The two plans are part of a larger recent stream of buybacks announced by U.S.- and Hong Kong-listed Chinese companies since July in a bid to prop up prices for an entire group from a wide range of backgrounds. Most of those companies’ shares are coming under pressure as a result of a series of regulatory clampdowns in China, regardless of whether such actions affect them.

Such buybacks are a common tactic in this kind of situation, though results are definitely mixed. In this case, success increasingly looks like it’s pegged to investor bets on how much impact companies will feel from the recent regulatory wave.

Among the latest two buybacks, the one by Smart Share Global, operator of the Energy Monster power bank service in China, has yielded quite impressive results. The company’s stock shot up as much as 69% in Wednesday trade after announcing it would buy back up to $50 million worth of its shares. The stock ultimately gave back about half of that, closing up 36% on the day.

Put differently, the announcement added $258 million to the company’s market value, bringing it to just shy of the $1 billion mark that’s the official cutoff for “unicorn” status. The company easily qualified for such status when it sold American depositary shares (ADSs) for $8.50 apiece in its New York IPO back in April. Even after the Wednesday rally, the stock’s latest close of $3.91 represents less than half the IPO price of $8.50.

It’s also quite noteworthy that Smart Share Global’s trading volume surged many-fold on Thursday, reaching nearly 3.6 million ADSs versus a more common daily volume of around 50,000 in recent weeks. That could indicate some investors – perhaps including one or two big institutional buyers – seem to feel the stock is indeed highly depressed and took advantage of the share buyback to take or increase positions.

While managers at Smart Share Global probably slept well Wednesday night, the same can’t be said for Cloopen – a company that we’ve previously described as lacking respect from investors even though its actual business looks quite respectable.     

Nearly simultaneous with the Smart Share Global announcement, Cloopen said it would purchase a similar amount of up to $40 million worth of its own shares. The stock initially rose a modest 2.2% when trading began on Wednesday, only to quickly run out of steam and end the day down 3.1%. And unlike Smart Share Global, Cloopen’s trading volume for the day was just 625,000 ADSs, roughly similar to its daily average in recent weeks.

Spotty Record

We’ll spend the second half of this space looking at some of the other share buybacks announced since the bloodbath began in July, and end with a look at what might lie ahead.

From the broadest perspective, such buybacks are usually seen as a sign of confidence by management in their company when its shares come under pressure. In other words, management is trying to say: “Sentiment may be against us, but we believe such negative sentiment is unfounded and our shares represent good value at their current levels.”

Most often it does seem like such signals have very limited effect, though that’s not always the case.

Not counting the latest two announcements, stocks for all but one of the roughly half-dozen companies that have announced share buybacks since July are currently down. One of the earliest, vocational education services provider China East Education (0667.HK), has lost about a fifth of its value since it announced a plan to buy back up to 10% of its shares on July 6.  

Others who have suffered similar fates include online drug wholesaler 111 Inc. (YI.US), whose stock is down 7.6% since it announced a very modest $10 million buyback plan on Sept. 7. A much larger plan from technology service provider Linklogis has also had limited impact after being met with initial enthusiasm.

Besides Smart Share Global, the only company whose shares are actually up from levels before their buyback announcements is Cango CANG, an online auto specialist aiming to transform itself into a one-stop trading shop for wholesalers, car dealers and new and used retail car buyers. Cango first announced its plan to buy back up to $50 million worth of shares on Aug. 19, and its stock is currently 11% above where it traded just before that announcement.

It’s difficult to draw too many conclusions from such a small number of cases for companies from a wide range of backgrounds. Cango’s example may show investors are sniffing around for stocks that may be least affected by regulatory changes, since the company doesn’t operate in the education or consumer sectors that are the central focuses of recent cleanups.

While smaller retail investors may be sniffing around for bargains, bigger investors are also starting to do the same. That situation was in focus last week when a group of private equity buyers made a bid to take U.S.-listed online marketing services provider iClick (ICLK.HK) private at a 19% premium to the company’s share price.

At the end of the day, these big “value oriented” institutional buyers will probably be a major factor in how well Chinese companies’ shares fare in the months ahead. The huge surge in trading volume for Smart Share Global hints that such a major institutional buyer may have been behind the big jump in the company’s price after the buyback announcement. We can probably expect to see more similar activity in the months ahead as big institutional players bet on who is best positioned to survive and thrive after the current cleanup subsides.