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The backstory: Alibaba, founded in 1999, used to be China's most valuable tech company. It's big in the e-commerce and cloud market, but now it's facing new competitors like PDD, owner of Pinduoduo and Temu. China's economy has been in a bit of a slump recently, with people having cut down on spending. With that, Alibaba fell short of expectations when it came to revenue in the December quarter. It grew just 5% year over year, which was slower than in previous quarters. The company has also lost some of its market share to PDD and ByteDance, owner of TikTok.
On top of that, company co-founder Jack Ma criticized Chinese regulators in 2020 for their oversight of sectors like finance and tech, which left Alibaba with a target on its back. Beijing cracked down on tech giants to reform their practices and keep them from using their platforms to dominate the market, leaving space for Alibaba's newer competitors to move up the food chain.
More recently: Last March, the company announced plans to split into six independent businesses, each with its own CEO and board of directors. This means each unit could independently go public, which Alibaba wanted to do with its cloud division. But that plan was later scrapped over worries about US curbs on chip exports to China. This and the low turnaround in the cloud unit eventually led Morgan Stanley to downgrade the firm. PDD then overtook Alibaba as China's most valuable e-commerce company in December.
Along with the restructuring, Alibaba has been looking to cut costs and offload some of its assets that aren't part of its core e-commerce and cloud focuses. It's also cut about 40,000 jobs over the last two years and is looking to focus more on the quickly growing artificial intelligence (AI) industry.
The development: Alibaba just announced a new US$25 billion stock buyback on Wednesday to reassure investors about its outlook. This is on top of an existing buyback program for the same amount announced in 2022. A share buyback is a way for a company to return money to its investors by reducing the number of shares out there and driving up the stock price. But the company's US stock prices dropped by 6% at midday on Wednesday because investors are still worried about China's slowdown in consumer spending.
The buyback "signals where company management sees value, and it may also be a bellwether for where they see regulatory action – perhaps we are coming closer to the end of it," said Justin Tang, head of Asian Research at United First Partners in Singapore.
"Our top priority is to reignite the growth of our core businesses, e-commerce and cloud computing," Alibaba co-founder and CEO Eddie Wu said on Wednesday.
"It's about buying time, as Alibaba figures out how to rejuvenate the core commerce business, and as it ramps up AIDC growth," said Ivy Yang, founder of consultancy Wavelet Strategy and a former manager at Alibaba. "Especially after the news that the cloud business will not be spun out, investor confidence in the restructuring is shaken."