Alibaba Group Holding Ltd (NYSE:BABA) is taking the advice of China’s leaders and buying into the stock market in the midst of the current crash. The firm announced early on Wednesday morning that it was buying into Chinese e-commerce firm Mei.com. Mei is one of China’s premier flash sales firms.
The deal will see Alibaba share some of its logistics network with Mei, and Alibaba work with the firm’s team in order to secure products, and expand the firm’s user base. Alibaba’s Tmall, which specializes in the sale of foreign-made goods to Chinese consumers, is the Alibaba unit in charge of the deal with Mei.
Alibaba shouts buy
The move from Alibaba Group on Wednesday may come as a surprise given the huge drop in value see on Tuesday’s stock market, but Jack Ma and the other leaders at the firm appear to be trying to shift the cloud of greater Chinese market collapse.
On Tuesday afternoon the firm announced an increase in its stake in Singpost to 14.51 percent. Singapore Post will deepen its logistics partnership with Alibaba in order to help the firm’s shipping times improve across Asia. In exchange Alibaba invested $138.6m into the firm in exchange for 5 percent of the firm’s stock.
Earlier this week the Chinese state put together a large stock buying package among the country’s pension funds and other investment vehicles. The move was designed to shore up faith in the stock market and keep it from further collapse.
That didn’t happen, but Alibaba may have learned a thing or two about building market confidence from the move. The firm’s buying spree on Tuesday indicates a will to show those with shares that everything is going according to plan, even as share hit all time lows.
Credit Suisse said this morning that it was time for its clients to buy into Alibaba Group based on recent pullbacks. The firm said that Alibaba’s leadership in e-commerce was a force to be reckoned with, though the Chinese crash might have some effect on the firm’s business.
Dick Wei, who wrote the report for Credit Suisse, says he thinks shares will rise to $114 in the next twelve months and blamed the recent decline entirely on the drop in the Chinese stock market.
Alibaba worries deepen on China fall
In the last month the Chinese stock market has lost more than 30 percent of its value and more than half of the firms on it have halted trading of their own shares. Alibaba Group has not been immune to that fall, despite being listed in New York rather than Shanghai.
On Tuesday shares in the firm fell strongly before recovering. On Wednesday’s pre-market the firm’s shares had lost more than 3 percent. In the month since the collapse of the Chinese market began, the firm’s shares have lost more than 12 percent of their value. Yesterday’s collapse saw Alibaba fall below the price it debuted at last year, and hit a new all time low.
The worry for those with shares in Alibaba Group is that the collapse of China’s stock market is a reflection of big issues in the country’s wider markets.
If growth in China is on a slowing path, sales at Alibaba Group won’t expand in line with forecasts, and shares are not worth their huge multiple. That’s a problem that some holding shares in the firm are fleeing given the situation in the country.
Others, with confidence in the firm’s home market and its attempts at global growth, are looking forward to buying in low and selling once the firm’s growth takes off. SunTrust Robinson Humphreys analyst Bob Peck had a Buy rating and a $110 price target on the firm when he released his last report on June 10.
Mr. Peck says that Alibaba was a diverse firm with many growth drivers, including cloud business. “We think several drivers support the Chinese market growth, including: Chinese government support of cloud; continued transitioning of offline businesses to online; overall accelerating China IT spend,” he wrote.