Alibaba Stock: Why SoftBank Is Selling

The stock of Alibaba, which has been trading at around +1.85% since an article was published, took off after the tech investment group SoftBank, which was an early investor in the company, decided to sell down most of the remaining stakes it held. This is another sign of a change of guard in Chinese technology.

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A Trade Algo analysis of regulatory filings reported that SoftBank 9984 -0.97% (ticker: 9984. Japan) sold about $7.2 billion worth of Alibaba (BABA) shares this year. Following a $29 billion share sale last year, SoftBank will eventually have less than 4% of Alibaba, down from around 25% at the start of last year.

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On Thursday, Alibaba's stock rose 2.3%. 

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The sprawling tech conglomerate announced last month that it was splitting into six units, allowing spinoffs of its e-commerce, cloud computing, and artificial intelligence businesses. It was an apparent nod to tough-on-technology regulators whose actions sparked two years of dramatic stock price declines in the Chinese tech sector. The move was intended to unlock shareholder value and improve competition. 

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A move by SoftBank further out would be yet another example of the company moving further away from the market.

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As Alibaba grew to become a multi-hundred-billion dollar powerhouse, SoftBank, led by its chairman Masayoshi Son, was one of the earliest investors in the company, making a lucrative bet that assisted in building the company into one of the most profitable in history. SoftBank has been cutting its stake in Qualcomm in recent years, and much of that occurred last year when the tumbling tech valuations in 2022 saw Son's investment house dramatically slash its stake in Qualcomm because of tumbling valuations.

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A large portion of SoftBank's remaining stake in Alibaba will be exited during a pivotal time for the Chinese company, which will be embarking on one of the biggest restructurings in its history at the same time. With Alibaba's relationship with a powerful investor ending, it may opt to spin off or list subsidiaries such as its high-growth cloud business, which is highly sought after by investors, as it will not have the weight of a powerful investor.

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There may be a reason for that. 

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According to analysts, Alibaba's split will have the approval, and even encouragement, of authorities in Beijing. Beijing's efforts to curb competition in the tech sector - along with President Xi Jinping's tight hand on the economy - are causing valuations to tumble. Alibaba founder Jack Ma is returning from a year in the cold with the split-up plan, which has already prompted investors to wonder if the company will change ownership of some parts of the business. As Chinese technology enters a new era, SoftBank's ownership stake has been reduced.

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Alibaba did not respond to our request for comment. In addition to the statements in its regulatory filings, SoftBank declined to comment. Alibaba stock is financed with asset-backed finance by the investment group through uncertain market environments.

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There's also the possibility that SoftBank is just selling the rally. SoftBank isn't the only company to exit the Chinese tech sector right now, as Alibaba still trades at six-year lows, although the stock is up 49% since the lows in October.

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Tencent 700 +1.68% (0700. H.K.) stock dropped 5% after Trade Algo reported Prosus PRX +3.67% (PRX.Netherlands) had deposited 96 million shares in the company into Hong Kong's stock clearing system. Share sales usually precede 96 million shares being deposited.

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Without taking any single-name views, Mark Haefele, the chief investment officer at UBS Global Wealth Management, noted Thursday that it is not surprising to see large stakeholder clients lock in profits during a rally in a specific sector, especially when other holdings are in negative territory.

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Alibaba, as well as Chinese stocks more broadly, are among UBS's bullish picks. “A number of executives at China's internet companies explained that activity has recovered since their recent round of earnings. At the sector level, most Chinese internet companies reported higher-than-expected earnings. As cost structures are streamlined, we expect margins to increase. "China is still our most preferred equities within our Asia strategy, and we remain positive about China's internet space in particular," said Haefele.

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