Alibaba's Strategy Shift Aims for Turnaround with Enhanced Logistics and Share Buybacks, Earns Analyst Confidence

Mizuho analyst James Lee reiterated a Buy rating on Alibaba Group Holding Limited BABA with a price target of $95.

Alibaba announced the withdrawal of the Cainiao IPO and listing application for the Hong Kong Stock Exchange. Cainiao, Alibaba’s logistics and shipping division, was the subject of the aborted IPO, the analyst noted. 

Also Read: Alibaba’s Logistics Arm Cainiao Boosts Employee Bonuses, Plans Major Incentive Overhaul

Management cited strategic and current market considerations for the decision. Strategically, Alibaba plans to integrate Cainiao with core e-commerce operations to regain market share and drive growth. 

Additionally, Lee flagged the company’s efforts to make sustained infrastructure investments to expand Cainiao’s global footprint.

Furthermore, Cainiao’s financial information for the IPO application has expired, and challenging near-term market conditions hinder management’s ability to unlock shareholder value fully. 

Renewing the applications could also create distractions for management. Concurrently, Alibaba plans to repurchase shares from all minority shareholders for up to $3.75 billion to address workforce stability and provide liquidity, Lee said.

Alibaba currently owns 64% of Cainiao’s equity interest, implying an internal valuation of $10.41 billion for Cainiao. 

The new management structure has led to more agile and efficient decision-making regarding the company’s reorganization. 

Management anticipates positive impacts on operational and financial metrics in the future. However, spin-offs of subsidiaries are postponed due to poor capital market conditions.

Regarding capital allocation, Alibaba expects the Cainiao repurchase to conclude before June/July. 

Additionally, the company plans to provide quarterly updates on regular share buybacks and will review its dividend policy in May. The firm intends to return capital to shareholders.

Despite market challenges, the analyst considered Alibaba an attractive turnaround story with a valuation of only 4x fiscal 2025 EBITDA. The analyst is waiting for more signs of macroeconomic recovery in China for a sustained rebound.

Price Action: BABA shares traded lower by 0.22% at $71.32 on the last check Wednesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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