Will Alibaba Stock Split?

Alibaba Group Holding Ltd – ADR (NYSE:BABA) is China’s answer to Amazon. This technology conglomerate and ecommerce giant barely suffered a share price blip when the rest of the market seemed to freefall.

While other companies struggled, it was positioned in the right place at the right time to remain profitable, and its share price rallied relentlessly throughout the rest of the year.

After reaching historic highs over $300 per share, some investors wonder will Alibaba stock split?

BABA stock price was volatile throughout 2020, and an economic outlook that looks bleak into the future is reason for conservative investors to be cautious of future turbulence.

Splitting its stock would make Alibaba more affordable for investors to buy in bulk. It could also help the company grow its investor footprint as a wider audience of buyers is reached. With an IPO price of $68, a 4-for-1 split could make sense. 

Will Alibaba Stock Split?

Alibaba already split in the lead-up to the overall stock market volatility. On July 16, 2019, BABA shareholders voted in favor of an eight-for-one stock split with a one-year deadline to implement. Y

ou may think it’s a bit early to call another split, but it could come in a different way than you think.

Things got more complicated at the end of 2020, as China’s State Administration for Market Regulation (SAMR) fined Alibaba alongside Tencent (TCTZF) and SF Holding for monopolistic practices.

It’s the company’s investment arm that received the fine, which is a paltry $76,472 for deals that occurred in 2014 and 2017. While not even a slap on the wrist, it echoes a broader move toward breaking up big tech companies across the globe.

Both the United States and European Union have antitrust cases pending against tech giants like Google, Apple, Amazon, and Facebook. It’s a breakup on the level of Bell System being broken down into Baby Bells that are once again giants, like AT&T (T) and Verizon (VZ).

Except even those telecommunication giants may have a stake in the breakup of big tech. The Play and App stores take revenue that was once paid through your monthly phone bills.

Alibaba could find itself a casualty of the U.S. China trade war or land in regulatory hot water with the E.U. It may behoove them to split one more time or even spinoff a subsidiary into an independent company.  

How Many Times Has Alibaba Stock Split?

When Alibaba’s stock split was announced in 2019, co-founder Jack Ma unloaded a lot of his shares. He held onto a bunch too. And that paid off well, as the stock jumped from the $150-200 range in 2019 to the $250-$300 range by the end of the pandemic year.

And the pandemic is only getting worse, even as vaccines are made more readily available to the public. It could be another year or two before we return to normal life. In that time, Alibaba and its ilk will rake in more profits.

 

Of course, just because the stock splits doesn’t guarantee Alibaba investors more returns.

Do Stocks Go Up After A Stock Split?

Stock prices are reduced after a split, because the market capitalization doesn’t change. It’s simply divided among more shares. Even with the split accounted for, Alibaba’s shares did go up in price.

The company’s August earnings report showed 34 percent year-over-year revenue growth, with $6.4 billion profits and $5.2 billion free cash flow at the end of the quarter.

Investors flocked to this stock over the summer, and it provided healthy returns before deflating toward year end as two vaccine candidates from Pfizer and Moderna were proven effective in clinical trials.

It wasn’t all good news for investors though. November’s results were still high but showed slower growth that triggered some shareholders to offload shares. A split could renew their interest in snapping up more shares.

Risks of Alibaba Stock Split

The problem with splitting the stock is it attracts traders more so than investors. As Warren Buffett has famously said he doesn’t and won’t split Berkshire Hathaway because he wants investors who perceive themselves as co-owners of the company, not traders who dip in and out. Long term investors lead to less churn and more price stability.

Another risk could appear if and when the economy reopens – there is a chance tech stocks will suffer. As consumers migrate back to brick and mortar stores, the trend takes revenue away from conglomerates like Alibaba that have a virtual monopoly on digital markets.

Also, the November earnings showed things are already slowing. $6.1 billion profits and $6.0 billion free cash flow showed a minor dip in the company’s sales reports.

Regulatory action pending throughout 2021 makes next year a dangerous market for tech stocks. Nobody is safe, and Alibaba could find itself on the firing squad, especially if precedent is set through Amazon (AMZN) and other American counterparts.

Will Alibaba Pay Dividends?

The company only went public through a 2014 IPO. It since gained 200 percent value, making Ma one of the world’s richest men with an estimated $41.8 billion fortune.

Should current CEO Daniel Zhang wish to maintain the strength of Alibaba’s reputation on Wall Street, a dividend could be the way to do it.

Amazon famously doesn’t pay dividends – neither does Alphabet (GOOG). Apple does, however, and it has an infamously dedicated fanbase. Alibaba could differentiate itself from the competition and consider the dividend payment a marketing strategy.

It’s unclear if it will ever take this position. But with China’s population growing, Alibaba’s reach spreading worldwide, and 5G on its way, it could be in the playbook.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.