Key Takeaways
- Alibaba issued 710 million fresh shares at HK$112.70 each, representing an 8.4% discount, generating HK$80 billion ($10.21 billion) in capital
- This represents the biggest primary follow-on stock offering ever conducted by a Hong Kong-listed enterprise
- Proceeds are earmarked for artificial intelligence expansion, covering chips, data center facilities, and AI model development
- “Big Short” investor Michael Burry states BABA must decline an additional 50% from current prices before he would reconsider purchasing
- Analysts maintain a Strong Buy rating with an average target price of $185.67, suggesting 55.6% potential gains
Alibaba launched 710 million newly issued shares at HK$112.70 apiece, securing HK$80 billion ($10.21 billion) through a placement that triggered an 8% decline in its Hong Kong-listed shares during Monday’s opening session. The U.S.-listed BABA ticker similarly dropped over 3% in pre-market activity.
Alibaba Group Holding Limited, BABA
The offering price reflected an 8.4% markdown compared to Friday’s Hong Kong closing value. Such significant discounts typically unsettle market participants, and this instance proved consistent with that pattern.
This transaction stands as the most substantial primary follow-on share issuance ever executed by a Hong Kong-based public company. On a worldwide scale, it represents the third-largest offering of this nature in the current year, trailing only Alphabet and Intel.
Alibaba indicated the capital will support its comprehensive AI strategy. This encompasses semiconductor development, artificial intelligence models, and infrastructure buildout.
The new shares expand Alibaba’s outstanding share total by roughly 3.7%, intensifying existing shareholder dilution worries.
Burry Withdraws Support
Michael Burry, renowned for his prescient “Big Short” wager, has already reallocated his Alibaba holdings into JD.com. He indicated his original strategy involved redirecting the majority of his capital back into BABA within one to two months, but this share issuance altered his approach.
“Share issuance has become its standard operating procedure,” Burry commented. He stated BABA would require approximately a 50% decline from present valuations before he would entertain repurchasing.
Burry’s apprehension extends beyond simple dilution. He’s also skeptical about whether Alibaba can deliver substantial returns from its artificial intelligence investments.
Recent Financials Compound Challenges
This equity raise follows just one week after Alibaba disclosed its fiscal second-quarter performance. Top-line revenue advanced 9% year-over-year to $39.64 billion.
However, bottom-line metrics weakened significantly. Non-GAAP diluted earnings per ADS plummeted 42% to $1.26. Adjusted EBITA contracted 30%, while operational income tumbled 57%.
Capital expenditure surged 75% to $10.07 billion during the quarter. Management disclosed it has already deployed almost half of its three-year capital investment allocation.
Alibaba also accelerated its anticipated timeline for AI investment returns, now projecting payback within two and a half years instead of three, attributing this to explosive growth in AI service demand.
Net profit for the quarter collapsed 75% year-over-year, predominantly due to aggressive AI-focused spending.
Last week, Alibaba Cloud launched its third data facility in South Korea, expanding its worldwide infrastructure to 104 availability zones spanning 30 regions. This aligns with Alibaba’s October commitment to deploy 380 billion yuan ($56.54 billion) over a three-year period.
Wall Street analysts continue to rate BABA as a Strong Buy, supported by 10 Buy recommendations issued within the last three months. The consensus price target stands at $185.67, representing approximately 55.6% upside potential from present trading levels.
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