Alibaba’s shares soared after the company announced a major restructuring to split into six business groups. The move has drawn positive sentiment from major Wall Street banks, with Morgan Stanley saying the reorganization could result in a 100% upside move in Alibaba’s share price. Alibaba’s restructuring will involve the creation of six independent business groups, each led by their own CEO and board of directors, allowing them to conduct independent fundraising and IPOs, with the exception of one division that will remain 100% owned by Alibaba. Alibaba shares closed 15% higher in Hong Kong on Wednesday after trading a similar amount higher on the NYSE on Tuesday. Morgan Stanley said US-listed Alibaba shares are trading at a significant discount to their total valuation and the restructuring could unlock that value. BABA 1Y Mountain analysts at Wall Street Bank said the stock’s nine times forward price-to-earnings rating in 2024 means the market has assigned a zero value to the group’s non-core e-commerce businesses. Almost all of the valuation comes from Alibaba’s massive e-commerce and retail business, according to Morgan Stanley. Morgan Stanley analysts, led by Gary Yu, wrote in a note to clients on March 28 that they “could see potential for more than double our $200-per-share bull case.” “With the gradual recovery of consumption in China… and the potential catalyst for corporate restructuring, we reaffirm BABA as our top choice on the Chinese internet.” In a separate research note to clients on the same day, they added: “We believe the share price in will increase in absolute terms over the next 60 days.” “We view BABA as a key beneficiary of China’s reopening and as a proxy for inflows of global investors into China. We estimate that the probability of the scenario is over 80% (or “very likely”).” The investment bank is not alone in its optimistic view of Alibaba. Jefferies also believes the reorganization will allow various business units to respond quickly to market changes. According to the investment bank’s calculations, Alibaba shares are currently trading at a “significant discount” to their overall valuation. Before the restructuring plans were announced, analysts at Jefferies expected Alibaba shares to rise 22% to $120 per share. Baird’s analysts also told clients that the reorganization was a positive move to increase shareholder value. In contrast, CNBC’s Fast Money traders said they were hesitant about whether the stock is a good play now. “There has always been a lot of value here. In fact, if you invest in this company, you get Ant for free. This is great news for me. This is a wait-and-see moment,” said Tim Seymour, founder and chief investment officer of Seymour Asset Management. Seymour added that he found it “hard to believe” that the Chinese government’s intentions were good for the secession. The Chinese tech giant’s overhaul comes amid ongoing growth struggles in recent quarters, with the company losing around $600 billion in market value from its October 2020 peak. This is partly because the Chinese government’s crackdown on tech companies has hurt private tech companies like Alibaba and Tencent. However, there are signs that Beijing is warming up again to tech companies and is trying to revive economic growth in the world’s second largest economy. Jack Ma, the outspoken and charismatic founder of Alibaba, who has not appeared in public for several months and has traveled abroad, has returned to China and is perceived as an olive branch from Beijing. – CNBC’s Michael Bloom and Hakyung Kim contributed to this report.
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