Alibaba Group said it will hike its share repurchase program to $25 billion from $15 billion, the largest ever buyback undertaken of a Chinese internet stock.
The buyback will run for two years through March 2024, Alibaba said on Tuesday after its board authorized the upsized share repurchase program.
The move sent Alibaba’s shares over 11% higher in Hong Kong trading to close at HK$110.20.
“The upsized share buyback underscores our confidence in Alibaba’s long-term, sustainable growth potential and value creation,” said Alibaba Group’s Deputy Chief Financial Officer, Toby Xu.
As of March 18, the company has purchased 56.2 million American depositary shares (ADS) under the previously announced buyback program for $9.2 billion.
Alibaba’s stock price does not fairly reflect the company’s value given our robust financial health and expansion plans
Scooping up its own shares is a mark of faith by Alibaba in its continued growth despite pandemic-induced headwinds. Alibaba’s ADS price has tumbled 56% in the past year.
As the shares slipped lower, Alibaba has ramped up its purchases. In May 2019, Alibaba announced a two-year buyback of $6 billion, then expanded it to $10 billion in December 2020 and again in August to $15 billion.
The Hangzhou-based group has purchased $1.5 billion worth of stock since January.
“Alibaba’s stock price does not fairly reflect the company’s value given our robust financial health and expansion plans,” said Xu.
Among equity analysts, 53 out of 60 have a “buy” rating on the stock and an average 12-month price target of $171.48, Bloomberg data showed. The stock closed at $103.59 in New York.
During a share repurchase program, a company buys back its own shares from the marketplace, shrinking the number of outstanding shares. As of Feb. 28, Alibaba had about 21.5 billion ordinary shares (roughly 2.7 billion ADS) issued and outstanding, so the repurchase equates to around 2% of the issued share base.
Alibaba has plenty of firepower on hand. As of Dec. 31, Alibaba’s cash, cash equivalents and short-term investments added up to RMB478.53 billion ($75.09 billion).
“The news is positive to share price in the near term,” said equity analyst Tsz Wang Tam at bank DBS, who has a “buy” recommendation and target price of $187 for the ADSs and HK$182 for the Hong Kong-listed shares.
To read how Alibaba’s restructuring impacts its share buyback click here