Shares of Chinese e-commerce giant Alibaba Group Holding Ltd. (BABA) fell more than 6%, closing at $114.82 on February 7, after a Citi analyst cautioned about SoftBank’s stock sale.
The battered stock has lost 49.5% over the past year amid a crackdown on Chinese tech stocks by the authorities, and its shares are down 4.6% year-to-date.
Citi Analyst’s View on BABA SEC Filing
Alibaba filed an F-6 regulatory filing on Friday, February 4. The filing stated the registration of one billion additional American Depositary Shares (ADS), which the company noted could be used to, “accommodate the issuance of additional ADSs upon the deposit of ordinary shares, including deposits of the company’s ordinary shares that are listed on the Hong Kong Stock Exchange.”
This simply means that holders of BABA shares (either those listed on Hong Kong or held before BABA went public) can sell their shares on the exchange, which were previously not traded on the NYSE.
As soon as the form was filed, Citi analyst Alicia Yap and her team pointed out that this does not refer to BABA’s issuance of new shares. Instead, it refers to shareholder SoftBank’s sale of its ADSs. Citibank N.A. is also Alibaba’s U.S. depository bank.
Japan-based SoftBank Group Corp. is one of the biggest shareholders of Alibaba and owns around 24.8% of the tech giant. SoftBank had invested in the company even before it was listed in the U.S. and has about 5.4 billion shares of the BABA stock.
SoftBank typically invests in technology stocks and has been trading down due to a fall in its holdings. Shares of SoftBank are down more than 45% over the past year. Though Citi’s analyst view is just speculation, it would be worth pondering if this is a good time to sell BABA stock since it is trading near its historical lows.
Citi Analyst Comment
Commenting on the filing, Yap and her team commented, “While we believe a portion of the new registration could suggest future new shares to be issued pursuant to the employee equity incentive plan, we believe it might also suggest potential selling intention by SoftBank.”
Citi analyst Alicia Yap reiterated a Buy rating on the stock and a price target of $216, which implies 88.1% upside potential to current levels.
Overall, the BABA stock commands a Strong Buy consensus rating based on 20 Buys and 3 Holds. The average Alibaba price target of $188.79 implies 64.4% upside potential to current levels.
TipRanks’ Website Traffic tool, which uses data from SEMrush Holdings (SEMR), the world’s biggest website usage monitoring service, offers insight into BABA’s performance, which is one of the best Chinese stocks.
In December, Alibaba website traffic recorded an 8.17% year-over-year decline in monthly visits. However, year-to-date website traffic growth increased by a modest 0.72% compared to the same period last year.
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