Why Alibaba Shares Are Soaring Today

What happened

Shares of Alibaba Group Holding (BABA 10.40% ) were up nearly 9% as of 1:30 AM ET today, bouncing off the stock’s 52-week lows it reached Friday.

Investors appear to be breathing a sigh of relief over a plan by another Chinese stock to delist from US stocks. Alibaba also announced an uproar among its senior management team, which was hoping for improvement after a difficult year. And a better macroeconomic forecast from Beijing probably helped sentiment as well.

Image source: Getty Images.

And then

Last week, Chinese ride-hailing giant DiDi Global (DIDI 9.88% ) revealed it would be delisted from the New York Stock Exchange after being ordered to do so by the Chinese Cyberspace Administration. Since Alibaba is also listed on US stock exchanges, fears of its own delisting caused the stock to plunge in sympathy as shareholders remained in the dark about the issue of a forced sale.

But on Friday afternoon, DiDi issued a statement stating that its US Depositary Receipts (ADRs) “may be converted into freely tradable shares of the Company on any other internationally recognized stock exchange at the option of ADS holders.” The company plans to list in Hong Kong, so as long as US DiDi shareholders have access to the Hong Kong stock exchange, conversion shouldn’t be an issue. Alibaba already has shares traded in Hong Kong, so it’s likely that any delisting would follow the same procedures, and ADR holders wouldn’t be forced to sell.

Alibaba also announced Monday that its current chief financial officer (CFO), Maggie Wu, would step down to be replaced by Toby Xu on April 1, 2022. Chairman Daniel Zhang said in the press release:

We are long-term oriented, and succession within our management team is always on hand at every opportunity to ensure that Alibaba is stronger and better positioned for the future. … Toby joined Alibaba from PwC three years ago and was appointed Deputy Group CFO in July 2019. He quickly demonstrated his solid capabilities and leadership in response to our continuously evolving business. He took on more and more responsibilities that grew into our strategic investments, in addition to financial management and operations. We are confident Toby is the right person to serve as our new Group CFO.

A management shuffle can be a relief for shareholders. While Alibaba’s core businesses remain profitable, many of its forays into newer businesses have been less successful, and most are still losing money. As a result, Alibaba’s profits fell sharply in the past quarter, even as sales grew. Given competitive pressures in the core businesses, a change in the finance team could help make the newer businesses and investments profitable.

What now

In addition to competitive pressures and government fines, many investors may also be concerned that the bursting of China’s property bubble could lead to a recession this summer. However, Monday also saw the Chinese government’s think tank propose 5% economic growth for 2022. Should the central bank ease monetary conditions to meet that target, it could ease pressure on China’s overall economy.

So the prospect of better than feared economic growth, a better than feared delisting scenario and a management shake-up all contributed to Alibaba’s strong rebound from its lows today.

There is still a lot of uncertainty surrounding Alibaba, but the stock remains undeniably cheap at around 12.7 times earnings expectations for next year.