Alibaba: Unlocking Value for the Next 12 Months

Yesterday, Alibaba saw a large rally in its share price. it was a stock specific news where ANT Group's investigation was concluded with a fine of about US$1 billion. With that, this means ANT can move forward to launching itself for an IPO probably in the Hong Kong Market

Who Else to IPO?

Besides ANT group, Hema and Alicloud have been announced to be spun off within the next 12 months. This means a large amount of Alibaba's conglomerate value will be unlocked.

For context, when JD and Tencent did the individual spin off of their empire's stake, share prices of the main company did not drop much and I believe Alibaba will be the same. 

My view is that Alibaba may remain at the same level of US$90/share throughout these 12 months, while share holders will get US$33.3 billion from ANT's IPO, US$55 Billion from Alicloud and US$6 billion from Hema. This brings US$90 billion in addiitonal value (approx US$39/share). Tencent share price did not fall much post the spin off of Meituan shares to Tencent shareholders.

Core E Commerce Remains

The e commerce segment, which generates US$20-24 billion annually, will still remain within Alibaba. 

Besides the e-commerce, Alibaba owns (i) US$36 billion in shares as stakes in other companies, (ii) about US$28 billion in cash and (iii) US$47 billion in short term financial instruments. At current market cap of US$230 billion, one is buying into a US$20 billion profit generating segment along with US$110 billion in cash and other investments, it does seem to be a bargain.

All in all, a doubling of share price from US$90 to US$180 is possible, considering that US$39 per share in value will be unlocked over the next 12 months and this will enable the market to efficiently value all the stakes in Alibaba.