Alibaba's generous dividend of 18 billion

Authors: Liu Baodan, Cao Anxun

Editor: Zhang Xiaoling

Pinduoduo's market value surpassing Alibaba, Jack Ma's rare internal speech to boost morale, Alibaba has come to a critical moment after 24 years of entrepreneurship.

On December 6th, Alibaba decisively took action to defend its stock price by announcing the distribution of dividends for the fiscal year 2023, totaling approximately $2.5 billion (about RMB 18 billion). This is Alibaba's third and largest dividend distribution in history. The last time was in 2010 when Alibaba distributed only about HKD 1.1 billion.

Thirteen years later, the dividend distribution reflects the increasingly fierce competition in the domestic e-commerce market and Alibaba's declining market share. Alibaba needs to prove to the market that it is still the king of Chinese e-commerce.

In fact, since Jack Ma's return to China in March this year and Alibaba's "One Split Six" strategy, it has shown a strong sense of initiative. On the earnings call on November 16th, Alibaba CEO Daniel Zhang proposed a new strategy for the next ten years, demonstrating the company's determination to transform.

Facing a new Internet landscape, Alibaba has provided a new direction for development, but the road to return to its peak is destined to be long and difficult.

Defending the Stock Price

On November 30th, Pinduoduo's market value reached $195.89 billion, surpassing Alibaba and becoming the highest-valued Chinese concept stock.

Six days later, in order to enhance investor confidence, Alibaba rarely played the "dividend" card, planning to distribute RMB 18 billion in dividends.

It is worth noting that dividend distribution is not common in Alibaba's development history, and this time the dividend amount is about 10 times the sum of the previous two dividends, which were approximately HKD 1.01 billion (about RMB 880 million) in 2009 and approximately HKD 1.1 billion (about RMB 940 million) in 2010.

According to the announcement, anyone who buys Alibaba shares before the ex-dividend date on December 20th can participate in this dividend distribution, including registered common stockholders and American depositary stockholders.

Currently, financial institutions have given positive feedback on the dividend distribution. Goldman Sachs, UBS, Barclays, Citigroup, and other institutions have recently released research reports, believing that Alibaba's future strategic planning is clear, and with the continuous increase in shareholder returns and the first dividend distribution to boost confidence, they have reiterated their "buy" or "hold" ratings.

In addition to the dividend distribution, Alibaba is also continuing to promote stock repurchases to enhance market expectations for the company's future development.

During the third-quarter earnings call, Alibaba Chairman Joe Tsai mentioned that the company still has unused funds of $13 billion in its existing stock repurchase plan. According to Wall Street News statistics, Alibaba has spent approximately $6.7 billion on stock repurchases in the first three quarters of this year.

In March last year, Alibaba announced the largest stock repurchase plan in the history of Chinese concept stocks, and in November last year, it increased the scale of the repurchase plan by $15 billion to $40 billion, extending the validity period until the end of March 2025, demonstrating its determination to boost the stock price. In addition to share repurchases and dividends, Joe Tsai stated that Alibaba's focus in capital management also includes improving the return on investment in various operational businesses, investing cash flow in future growth, and realizing the value of non-core assets. This also indicates that after the spin-off, Alibaba's focus is on enhancing shareholder returns.

Founder Jack Ma has also voiced his support for Alibaba. On November 16th, news of Jack Ma reducing his stake in Alibaba stocks caused Alibaba's US stocks to plummet nearly 10%. The next day, Jack Ma's office lawyer responded clearly, stating that the reduction was part of a long-term plan and that no shares have been sold at present. He emphasized that "Jack Ma firmly believes in Alibaba, and the current stock price is far below Alibaba's actual value."

On the evening of November 28th, when there was a heated discussion within Alibaba about Pinduoduo's stock price, Jack Ma appeared on Alibaba's internal network to congratulate Pinduoduo. At the same time, he expressed his belief that Alibaba will change and improve. "The era of AI e-commerce has just begun, and it is an opportunity and a challenge for everyone."

Behind the proactive capital management, Alibaba's stock price has continued to decline in recent years. As of December 6th, Eastern Time, Alibaba's market value was $182.07 billion, compared to its historical high of $858.01 billion in 2020, evaporating more than $670 billion in three years.

Of course, looking at the entire industry, the pressure on Alibaba's stock price is not only due to its own factors but also related to the declining confidence of large institutional investors in Chinese concept stocks and capital outflows in recent years.

In 2022, Tencent's stock price fell back to the level of five years ago and has also been declining overall this year. Meituan and JD.com's stock prices have both fallen by over 50% from the beginning of the year and are at their lows in recent years. Tencent distributed 958 million shares of Meituan stock to shareholders at the end of last year, and JD.com also paid a dividend of approximately $1 billion in March this year.

Starting from the distribution of dividends, Alibaba has shown a more proactive attitude towards the capital market and more ambition. The battle for the top spot among Chinese concept stocks began the moment Pinduoduo's market value surpassed Alibaba's.

The Road Ahead

Pinduoduo's market value surpassing Alibaba has caused a lasting shock to Alibaba employees and the internet industry.

Countless Alibaba employees feel nostalgic for the changed times. A former Alibaba employee sighed, recalling how glorious it was when Alibaba went public, creating countless millionaires and directly driving up house prices in the western part of Hangzhou several times over. Senior investor Zhao Zhenhua also stated that this is a "watershed" in China's internet industry, with newcomers such as Pinduoduo and ByteDance overturning the old patterns of social media and e-commerce.

Firstly, the consumer market has changed its direction. In the past two years, social consumption expectations have weakened. According to data from the National Bureau of Statistics, the online retail sales of physical goods reached 10.3 trillion yuan in the first ten months of this year, an increase of 8.4%. Although slightly better than 2022, it has significantly slowed down compared to the high-speed growth of over 25% in previous years.

At the same time, the e-commerce market is facing fierce competition. New forces in e-commerce, represented by Pinduoduo, Douyin, Kuaishou, and Xiaohongshu, are growing rapidly, continuously eroding Alibaba's market share, and even surpassing Alibaba's market value.

Compared to Pinduoduo's rapid expansion, Alibaba's growth has been slow in recent years, and the company has realized the crisis it is facing. According to the earnings report, Pinduoduo achieved a revenue of CNY 68.84 billion in the third quarter of this year, a year-on-year increase of 94%, while the revenue growth rate of Taobao and Tmall during the same period was only 4%.

Alibaba needs to tell a new story in order to continue to stand at the forefront of the Internet wave.

Alibaba is focusing on reform. In March, Jack Ma returned to China and led Alibaba to embark on the largest organizational transformation in the company's history, splitting the group into six independent business units for separate listings.

The split is not only to stimulate the vitality of each business, but also to clearly reflect Alibaba's value in the capital market. However, the split has proven to be more difficult than expected.

In May, Alibaba announced the listing timeline for Alibaba Cloud, Hema, and Cainiao. In September, Cainiao became the first to submit its listing application to the Hong Kong Stock Exchange. In November, Alibaba Cloud suddenly announced that it would no longer pursue a complete spin-off, and the listing of Hema was also postponed.

Although the company cited reasons such as a sluggish market, investors' doubts about Alibaba's transformation are increasing.

On November 16th, Daniel Zhang, as Alibaba's CEO, participated in the earnings conference call for the first time. He comprehensively explained the strategic blueprint for Alibaba's new development stage, pointing out that there will be three important priority directions for the future: technology-driven internet platform business, AI-driven technology business, and global commercial network.

At this point, Alibaba's future development direction is becoming clearer. The core points are still users and technology. Taking the example of Taotian, which occupies a dominant position, it will continue to adhere to the positioning of an internet consumer platform rather than a retail company.

Whether Alibaba can regain its position as the top Chinese concept stock with its new strategy still needs time to verify.

What defeated Alibaba is not another Alibaba, but a new species called Pinduoduo, which surpassed Alibaba in just 8 years.

This is the iteration of business models and the core of Pinduoduo's ability to develop rapidly in the face of low consumer sentiment and extreme market competition. Behind the facade of performance growth, the competition between Alibaba and Pinduoduo is actually a battle of business models, which is also the deep-rooted reason for investors' concerns about Alibaba's prospects.

In order to defeat the new species, Alibaba must first evolve into a new species. This is what Jack Ma referred to as the essence of change, and it is also Alibaba's biggest challenge.

The challenges Alibaba is currently facing are unprecedented, and Daniel Zhang has also shown a determined attitude. He emphasized at the earnings conference, "No matter how successful our past business models have been, we must turn the page and start from scratch, awakening the mentality of starting a new business."

In the first half of the Internet's development, Alibaba was a pioneer, from B2B to Taobao, from Tmall to Alipay. Alibaba was once the most innovative company in China. However, after 24 years of development, Alibaba is showing signs of fatigue. Now, how Alibaba will evolve is the key to breaking the deadlock.

Whether it is the returning "Eighteen Arhats" or the newly hired Alibaba employees, they must face an era of starting from scratch. Alibaba has once again come to a crossroads of destiny, and it must go all out.