Bottom line: Alibaba’s new tie-up with a leading US wine maker is mostly symbolic and represents a boom in the e-commerce market for imported goods, while NetEase’s new share buyback plan is unlikely to provide much support for its sagging stock.
Leading Chinese Internet companies Alibaba (NYSE: BABA) and NetEase (Nasdaq: NTES) are trying different approaches to boost their sagging stocks, amid a broader sell-off for US-listed Chinese companies in tandem with China’s own tanking markets. The first case has e-commerce leader Alibaba launching a new online wine shop with US giant Robert Mondavi, as part of a broader move to let Chinese consumers buy imported goods online. The move by online game giant NetEase looks a bit more conventional, with its announcement of a plan to buy back up to $500 million of its stock.
Alibaba and NetEase certainly aren’t alone in watching their shares tumble, amid a broader sell-off for US-listed Chinese stocks over the last 2 months. Alibaba shares have lost nearly half of their value from their all-time high reached last November, and now trade about 5 percent below their IPO price from a year ago. NetEase shares have lost a quarter of their value since early August, in a plunge coinciding with China’s own tumbling stock markets.
Let’s begin with Alibaba, since it’s a bigger company and its move is also a bit more colorful than NetEase’s share buy-back. Under the new tie-up, Robert Mondavi has opened a flagship store on Alibaba’s Tmall to offer its namesake wines to Chinese consumers. (company announcement) The move is squarely aimed at average consumers, with promotions on the new site offering bottles of wine for the very affordable prices of 15 yuan and 70 yuan each, or between $3 and $11.
The tie-up is exclusive, and marks the latest move by Alibaba to bring more foreign goods to Chinese consumers. Last month the company signed a similar deal to host a flagship online store for Macy’s (M), as the US department store giant formally entered the China market. Alibaba’s biggest rival JD.com (Nasdaq: JD) is making similar moves by opening a series of online malls focused on imported goods from different countries.
US retailing giants Amazon (Nasdaq: AMZN) and Walmart (NYSE: WMT) are also joining the frenzy by drawing on their international connections to offer more imported goods over their China-based sites. This latest announcement didn’t do much for Alibaba’s stock, which fell 2 percent in the latest trading session. The imported goods e-commerce market certainly seems set for strong growth, but Alibaba’s success is hardly assured since it will face stiff competition in the area.
Putting Idle Cash to Work
Next let’s look at the NetEase news, which is much more straightforward. In its brief announcement, NetEase said its board has approved a plan that would allow it to buy back up to $500 million worth of its stock over the next 12 months. (company announcement) Like many of China’s other leading Internet companies, NetEase has plenty of spare money for such buy-backs, with the company recently reporting it had $3.3 billion in cash at the end of June.
Investors weren’t too impresssed with the NetEase plan either, bidding down the company’s shares 1 percent in the latest regular trading session and another 2 percent in after-hours trade. NetEase certainly isn’t the only company putting its cash to work by buying back its stock. Last month Alibaba announced its own massive plan to buy back up to $4 billion worth of its shares. Leading search engine Baidu (Nasdaq: BIDU) has also announced a $1 billion buy-back plan.
None of the announcements have produced any results yet, but at this point there’s really very little the companies can do individually to stop the bigger sell-off. I personally think that shares of premier names like Alibaba and NetEase have been oversold, and are likely to rebound once China’s stock markets calm down. Accordingly, these buy back programs look like a good use for the companies’ idle cash, and could generate some nice returns if and when the shares rebound later.
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