TLDR
- Alibaba priced 710 million new shares at HK$112.70, an 8.4% discount, raising HK$80 billion ($10.21 billion)
- The deal is the largest-ever primary follow-on offering by a Hong Kong-listed company
- Funds will go toward AI infrastructure, including chips, data centres, and AI models
- Michael Burry says BABA would need to fall another 50% before he’d consider buying again
- Wall Street still holds a Strong Buy consensus with an average price target of $185.67, implying 55.6% upside
Alibaba priced 710 million new shares at HK$112.70 each, raising HK$80 billion ($10.21 billion) in a deal that sent its Hong Kong-listed stock down 8% in early Monday trading. U.S.-traded BABA also fell more than 3% in pre-market trading.
Alibaba Group Holding Limited, BABA
The share price was set at an 8.4% discount to Friday’s Hong Kong close. That kind of haircut tends to spook the market, and this time was no different.
The deal is the largest-ever primary follow-on offering by a Hong Kong-listed company. Globally, it ranks as the third-largest such offering this year, behind only Alphabet and Intel.
Alibaba says the money will fund its “full stack” AI capabilities. That includes chips, AI models, and infrastructure expansion.
The placement increases Alibaba’s total share count by about 3.7%, adding to dilution concerns already on investors’ minds.
Michael Burry Steps Back
Michael Burry, known for his “Big Short” trade, has already moved his Alibaba position into JD.com. He wrote that he had planned to rotate most of his money back into BABA after a month or two, but the share sale changed that plan.
“Issuing shares is now its new paradigm,” Burry wrote. He said BABA would need to fall around 50% from current levels before he would consider buying back in.
Burry’s concern is not just about dilution. He is also questioning whether Alibaba can generate strong returns on its AI spending.
Earnings Add Pressure
The share sale comes one week after Alibaba reported its fiscal second-quarter results. Revenue rose 9% year over year to $39.64 billion.
But profitability took a hit. Non-GAAP diluted earnings per ADS fell 42% to $1.26. Adjusted EBITA dropped 30%, and income from operations fell 57%.
Capital spending jumped 75% to $10.07 billion for the quarter. The company said it has already used nearly half of its three-year capex budget.
Alibaba also brought forward its projected payback on AI investment, now expecting returns in two and a half years rather than three, citing surging demand for AI services.
Quarterly net profit fell 75% year over year, driven largely by AI-related spending.
Last week, Alibaba Cloud opened its third data centre in South Korea, bringing its total network to 104 availability zones across 30 regions. This is part of Alibaba’s pledge, announced in October, to invest 380 billion yuan ($56.54 billion) over three years.
Wall Street still holds a Strong Buy consensus on BABA, based on 10 Buy ratings over the past three months. The average price target sits at $185.67, implying about 55.6% upside from current levels.
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