Latest / Bloomberg Intelligence / KraneShares' Ahern on Alibaba Earnings, Stock Buyback (Audio)

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KraneShares' Ahern on Alibaba Earnings, Stock Buyback (Audio) · Bloomberg Intelligence

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  Speaker 1: and that's a bloom Bird business flash. You're listening to
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  Speaker 1: Taking Stoff with Kathleen Hayes and Kim Fox on Bloomberg Radio.
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  Speaker 1: Ali Baba on fire today. It looks like jack Ma's
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  Speaker 1: diversification strategy is starting to pay off, as revenue at
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  Speaker 1: Ali Baba Group Holding accelerates to the fastest since its
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  Speaker 1: record initial public offering share price of five dollars and
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  Speaker 1: thirty four cents right now ninety two dollars and sixties
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  Speaker 1: six cents. And we're very happy to welcome back Brendan Hearn.
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  Speaker 1: He's chief investment officer at Crane Shares. Ali Baba is
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  Speaker 1: the number one position of Crane Shares c s I
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  Speaker 1: China Internet et F ticker symbol k w EB just
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  Speaker 1: rated five stars from Morning Star and as Brendan Nister
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  Speaker 1: minus or the last three years, they've beaten the SMP
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  Speaker 1: five hundred by holding Chinese stock, So welcome back, Thank you, Cather. So,
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  Speaker 1: first of all the news on Ali Baba. What did
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  Speaker 1: we find out today? Three key takeaways? Some of the
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  Speaker 1: parts companies buying back stock and lastly the cloud computing.
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  Speaker 1: So some of the parts. What I mean is Ali
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  Speaker 1: Baba is breaking out the different divisions for the first time,
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  Speaker 1: we're able to apply a growth rate. Analysts are going
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  Speaker 1: to be upgrading this stock over the next several days,
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  Speaker 1: I believe, based on aggregating these different divisions. UM secondarily
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  Speaker 1: was buying back stock over five billion dollars. And lastly,
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  Speaker 1: they're cloud computing is about to go profitable uh fousand
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  Speaker 1: paying customers and as we've seen with Amazon with a WS,
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  Speaker 1: the ability to drive that drive the stock potentially significantly higher.
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  Speaker 1: Why the buying back stock? Why do that? I mean,
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  Speaker 1: if you're a young company and you're supposedly a tech company,
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  Speaker 1: why can't they invest that money in things that will
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  Speaker 1: grow in the future buy back the stock. All it
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  Speaker 1: ends up doing is making the earnings look better mathematically
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  Speaker 1: because you take the shares out of circulation and stick
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  Speaker 1: him in the treasury. That that's a valid point of
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  Speaker 1: him UM. At the same time, the stock has been
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  Speaker 1: affected by broad China news. Last summer's Onshore equity market
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  Speaker 1: rolled over. Ali Baba has nothing to do with the
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  Speaker 1: Shanghai and shenz En stock exchanges, but the stock came down,
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  Speaker 1: but they got a lot to do with how business
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  Speaker 1: in China is doing well. Look at this past January
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  Speaker 1: where the implementation the circuit breaker affected, uh, the onshore
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  Speaker 1: equity market Shanghai Shen's and Ali Baba stock got crushed.
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  Speaker 1: So you you have investors the Ali Baba baby goes
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  Speaker 1: out when when the China water gets thrown out, and um,
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  Speaker 1: there's there's Ali Baba has nothing to do with with
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  Speaker 1: the Chinese stock market. It's so then why list there?
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  Speaker 1: So go ahead and just list here in the United States.
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  Speaker 1: So list in London, list somewhere outside of China. I mean,
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  Speaker 1: there are a lot of ways to accomplish what you're
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  Speaker 1: talking about without buying. It just seems odd when you're
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  Speaker 1: talking about a growth company, a tech company, doesn't it
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  Speaker 1: kind of make you question, g don't they have anything
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  Speaker 1: better to do with that five billion? Well, and I
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  Speaker 1: think you know you I p O was priced at
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  Speaker 1: sixty eight dollars, It got up to one twenty, it
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  Speaker 1: came all the way back down below seventy. The stock
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  Speaker 1: you're talking about a company that's growing the top line
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  Speaker 1: at over thirty percent. Me in here were one quarter
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  Speaker 1: you know, long term growth rate over this stock was
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  Speaker 1: just so inexpensive that I think the management bought it.
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  Speaker 1: I love that that that the company is buying back
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  Speaker 1: to stock and that the the CEO and the management team.
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  Speaker 1: UM is on the same time of the same side
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  Speaker 1: of the table as me as an investor talk to
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  Speaker 1: us about cloud computing. When I, you know, I think
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  Speaker 1: we will think of the competition and people trying to
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  Speaker 1: get and you think of Microsoft, Do you think of Amazon?
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  Speaker 1: I don't know if Ali Baba is the first name
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  Speaker 1: that comes to a lot of minds, what are they
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  Speaker 1: doing there? And why is that impressed analysts? What you say,
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  Speaker 1: are gonna upgrade Ali Baba? Now, yep, no, certainly, UM
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  Speaker 1: Ali Bamba is the primary businesses is in China basically
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  Speaker 1: selling to Chinese companies themselves, and and what they're looking
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  Speaker 1: to do is to take advantage of the very very
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  Speaker 1: advanced kind of technology ecosystem in China. Just as kind
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  Speaker 1: of Amazon is really you know, competing with Microsoft and
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  Speaker 1: others and with their AWS division, Alibaba is basically bringing
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  Speaker 1: that playbook to China. They've had a great level of
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  Speaker 1: success in a short period of time, over five thousand
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  Speaker 1: paying clients. UM it's it's it's about to start to
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  Speaker 1: hit an inflection point where it's going to be monetized,
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  Speaker 1: and the company guided that they believe they can have
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  Speaker 1: over a million million paying customers within a year. Ali
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  Speaker 1: Baba is not just in the delivery business, right, They're
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  Speaker 1: not just a broker products and services. They're trying to
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  Speaker 1: get into a lot of other businesses. Do you foresee
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  Speaker 1: a time when they're going to split those businesses off
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  Speaker 1: into separate units? Well think to some degree. And financial um,
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  Speaker 1: which is the equivalent of say like a PayPal um.
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  Speaker 1: It's it's I would argue, it's beyond what PayPal. It's
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  Speaker 1: ubiquitous in China. Uh it used to be called ali
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  Speaker 1: pay and and and financial um. Ali Baba has a
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  Speaker 1: thirty eight percent ownership position that's going to go public.
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  Speaker 1: I believe in probably about a year's time listening exchange
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  Speaker 1: to be determined. UM. But but I do think and
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  Speaker 1: and coming out UM was part of the value that
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  Speaker 1: some of the parts idea. So in terms of growth
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  Speaker 1: are Bloomberg News story points out that you know you
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  Speaker 1: can they they are the may the big thing in China,
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  Speaker 1: but they've got still got growth in users, big growth
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  Speaker 1: in users. Yeah, I mean one of the one of
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  Speaker 1: the statistics I love is the utile is Internet utilization
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  Speaker 1: right here in the United States is nearly we would
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  Speaker 1: over fifty percent in two thousand two. China just went
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  Speaker 1: over fifty percent utilization Amazon stock. Back in two thousand two,
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  Speaker 1: when the U S went over fifty percent, utilization was
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  Speaker 1: at six dollars. So unless you have a DeLorean out front,
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  Speaker 1: you're able to get into um China internet and e
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  Speaker 1: commerce companies UM at basically at a fifty percent, and
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  Speaker 1: that that numbers are only going to go higher. And
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  Speaker 1: that's why we're quite bullish, and that's self serving and
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  Speaker 1: highly biased. But as Somaly, as a shareholder myself, I'm
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  Speaker 1: a big believer in k Web. Now, the position that
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  Speaker 1: you hold in ali Baba is not a reflection of
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  Speaker 1: an actively managed decision making process. Correct, So how do
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  Speaker 1: you foresee the role of ali Baba in an index
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  Speaker 1: when it is so dominant a position? Well, ali Baba
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  Speaker 1: is certainly a big, big beneficiary of what we believe
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  Speaker 1: is with the top down policy, where where China's economy
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  Speaker 1: as a barbell, you have export driven manufacturing adversely affected
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  Speaker 1: by tep global growth. Global growth at the same time
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  Speaker 1: domestic consumption is doing very well in China so well
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  Speaker 1: as much as um I love Ali Baba, Um, I
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  Speaker 1: love ten Cent, ten Cent, the Facebook of China with
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  Speaker 1: their reach out application. I love c Trip, the the
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  Speaker 1: c Trip business a monopoly on online travel in China.
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  Speaker 1: Say they bought two of their largest the number two
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  Speaker 1: and number three players. They have a monopoly. Um, there's great.
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  Speaker 1: J D dot Com just reported a few days ago
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  Speaker 1: Great Great earnings Sina and Wi bo Um Great earnings.
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  Speaker 1: That this is the top down macro issue, and that's
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  Speaker 1: where we love the basket approach. We love diversifying. Tell
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  Speaker 1: me about the top john macro. Great. Obviously, there's plenty
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  Speaker 1: of Chinese consumers, workers, people are making money. We know
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  Speaker 1: a large part of China is still a poor country.
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  Speaker 1: And you know they had a slow down. And again
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  Speaker 1: I think the big industrial production numbers out of China
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  Speaker 1: tonight that's and pulling back a bit. So it's so fascinating,
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  Speaker 1: isn't it that I guess only the only part of
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  Speaker 1: China's economy to do well to spur this kind of
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  Speaker 1: growth for a company like Ali Bab, And you can
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  Speaker 1: only manage what would happen if the rest of the
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  Speaker 1: country could kind of digive itself out of poverty. Well, certainly,
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  Speaker 1: China of the population lived in cities today. It's that
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  Speaker 1: correlation is one between GDP per capita and China's urbanization,
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  Speaker 1: the movement of people into cities UM in China, proper housing, UM,
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  Speaker 1: access to healthcare, education, the becoming a middle class. And
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  Speaker 1: then there's there's third definition of middle class. So certainly,
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  Speaker 1: you know, there are liabilities on the China balance sheet,
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  Speaker 1: but at the same time, there's a there's assets, and
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  Speaker 1: we believe that there are concerns around mpls and banks
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  Speaker 1: and the X what's going to happen with overcapacity and
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  Speaker 1: coal stealing Alunum. Yes, what, I don't want to hold them.
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  Speaker 1: I want to hold the part of China that is
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  Speaker 1: growing and we get industrial production tonight, Kathleen, I'll be
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  Speaker 1: up on my terminal, but we to get retail sales.
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  Speaker 1: And retail sales has averaged ten month. You know, the
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  Speaker 1: monthly number for July. I think it's going to be
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  Speaker 1: a really number year over year, so it's pretty amazing
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  Speaker 1: off of the month. That's true. That's true, Um, But yeah,
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  Speaker 1: we know we love the retail sales and in China
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  Speaker 1: where your smartphone is your primary source of entertainment and
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  Speaker 1: increasingly et commerce. UM cell phones in China are very
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  Speaker 1: very big for a reason because they spend a lot
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  Speaker 1: of time on them, and certainly we see more as
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  Speaker 1: Ali Baba demonstrated today, there's there's there's something going on
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  Speaker 1: in China. I think that narrative is very early in
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  Speaker 1: it being told. Thank you very much for coming in
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  Speaker 1: and spending time with us. Brendan Hearn is the chief
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  Speaker 1: investment officer for Crane Shares. It can be followed on
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  Speaker 1: Twitter at crane Shares That's with a K and talking
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  Speaker 1: about Ali Baba reporting results that exceeded analyst estimates. Some
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  Speaker 1: say it is a stellar report card, reporting quarterly results
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  Speaker 1: that beat estimates on all fronts. Sales during the last
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  Speaker 1: quarter grew fifty nine percent, the fastest growth since it
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  Speaker 1: was listed in New York in twenty fourteen. This is
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  Speaker 1: taking Stockheim pim Fox along with my co host Kathleen Hayes.
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  Speaker 1: This is Bloomberg