Shares of Alibaba (NYSE:BABA) tumbled nearly 6% in Hong Kong’s trading session on Wednesday following reports that SoftBank recently sold most of its shares in the Chinese e-commerce and cloud giant.
According to a report in the Financial Times, SoftBank offloaded around $7.2 billion worth of BABA shares through prepaid forward contracts, reducing the Japanese conglomerate’s stake in Alibaba to just 3.8%, down from the 34% it once owned.
Why is SoftBank Exiting Alibaba?
Just three years ago, SoftBank maintained a roughly 25% stake in Alibaba, worth more than $100 billion, making it the group’s largest investment at the time. The latest stock sale means that SoftBank divested around 85% of its shares in Alibaba in the past three years.
The forward contracts allow SoftBank to repurchase BABA shares, but the Tokyo-based group has handled earlier deals by selling the stock. The move comes amid a critical period for SoftBank, which is eyeing a blockbuster initial public offering (IPO) of the UK chipmaker Arm as it looks to bounce back from a series of significant losses and unsuccessful investments in the recent period.
SoftBank CEO Masayoshi Son injected $20 million into Alibaba in 2000 when he met Jack Ma, the man behind Alibaba’s success. SoftBank’s investment helped the e-commerce startup turn into one of the largest tech companies on the globe.
“He had no business plan and zero revenue, employees maybe 35 [or] 40,” Son said about Ma. “But his eyes [were] very strong, strong eyes, strong shining eyes. I could tell from the way he talked, the way he looked [at things], he has a charisma, he has a leadership.”
SoftBank’s aggressive sales of its BABA shares come at a difficult time for the tech company’s stock, which plunged to the lowest level in six years in 2022. Economic conditions have significantly impacted the stock market as a notable slowdown in the tech sector has subsequently battered company valuations, leading to substantial quarterly losses at SoftBank’s Vision Fund in the past few years.
Most recently, Vision Fund reported a pretax loss of 660 billion Japanese yen (around $5 billion) in February, marking its fourth consecutive loss on a quarterly basis. The fund reported an investment loss of 730 billion yen in the October-December quarter and a 1.38 trillion yen loss in the quarter before that.
SoftBank itself posted a net loss of 783.42 billion yen in the fiscal third quarter, compared with a 29.05 billion yen profit in the year-ago period. As a result, Son said SoftBank would switch to a “defense” mode and operate in a more conservative manner.
SoftBank’s mounting losses, along with the market downturn triggered by record high inflation, rising interest rates, and geopolitical tensions last year, have weighed on investors’ confidence in riskier assets, adding further pressure on the Japanese group's extensive portfolio of startup investments.
Such tough circumstances have made some investors increasingly eager to see the long-awaited IPO of the British chip manufacturer arm, which SoftBank acquired in 2016 for $32 billion.
Navneet Govil, Vision Fund’s chief financial officer, said Arm has seen “good progress in terms of being IPO-ready," adding there were around 30 startups within the fund’s portfolio that are ready to go public when market circumstances improve.
Stock Sale Comes at a Critical Time for Alibaba
SoftBank’s selling spree of Alibaba’s stock also comes at a turning point for the Chinese tech behemoth, which announced a major strategic restructuring last month that will divide the company into 6 independent businesses.
The revamp, which represents the biggest reorganization in Alibaba’s 24-year history, is “designed to unlock shareholder value and foster market competitiveness,” the company said in a statement on March 28.
The restructuring will allow each of the six business units to raise outside funding and go public independently. In addition, each unit will have its own management, including a CEO and a board of directors.
The 6 new businesses include Cloud Intelligence Group, Taobao Tmall Commerce Group, Local Services Group, Cainiao Smart Logistics, Global Digital Commerce Group, and Digital Media and Entertainment Group. According to Alibaba, the decision is expected to help the company accelerate growth and better address its strategic priorities.
“This transformation will empower all our businesses to become more agile, enhance decision-making, and enable faster responses to market changes,” said Alibaba CEO Daniel Zhang.
The overhaul follows several challenging years for Alibaba which has grappled with slowing growth and rigorous scrutiny from Chinese regulators, erasing billions from its share price.
The announcement came just one day after Ma returned to China after spending more than a year outside the country and keeping out of sight since Beijing initiated a crackdown on local tech companies in 2020.
Despite the overhaul, Alibaba’s stock has struggled to gain ground in recent weeks. The company’s Hong Kong-listed shares are up only 6% year-to-date. This is despite the major restructuring announcement, as well as this week’s presentation of the generative artificial intelligence (AI) chatbot.
The company said it plans to integrate “Tongyi Qianwen” across all of its apps in the near future, including into Alibaba’s Tmall Genie smart speakers and enterprise collaboration platform DingTalk.
The product represents a response to the recent AI boom led by the marvelous chatbot ChatGPT. Zhang said during the live-streamed event the new technology "will bring about big changes to the way we produce, the way we work, and the way we live our lives.”
Alibaba shares closed lower in Hong Kong on Thursday after tech-focused investing behemoth SoftBank reportedly sold the majority of BABA shares as it attempts to generate cash and improve its embattled financial profile.
Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.