Why Alibaba Stock Bounced Back Today
What happened
Recovering from a three-day sell-off, shares of Chinese e-commerce giant Alibaba Group Holding Limited (NYSE: BABA) stock bounced back on Thursday and are up 7.2% as of 11:11 a.m. ET.
Alibaba's bounce back appears tied to a Bloomberg report yesterday that the company is "weighing options" to dispose of its 30% stake in Weibo (NASDAQ: WB), the "Chinese Twitter," and may sell its Weibo shares to "a state-owned firm."
Image source: Getty Images.
So what
There are at least a couple of reasons why such a move could be good for Alibaba. For one thing: cash.
With more than $72 billion in the bank, Alibaba isn't exactly hurting for cash. It even generated more than $24 billion of new free cash flow over the past year, according to data from S&P Global Market Intelligence). Nevertheless, selling 30% of Weibo, which is valued in excess of $7 billion, could generate as much as $2.1 billion in new cash for Alibaba to redeploy.
Even for a company as rich as Alibaba, that's not peanuts.
Now what
Perhaps even more important is where Alibaba might redeploy that cash -- and specifically, whether it might put it places other than social media.
As Bloomberg points out, "Weibo is among the most influential -- and controversial -- of Alibaba's media holdings," and it has been at the center of multiple political storms involving Chinese government censorship of posts on the internet. (You'll probably recall, for example, that it was a Weibo posting by Chinese tennis star Peng Shuai, and the star's subsequent disappearance, that sparked an international protest against the Chinese government last month).
With the Chinese government tightening controls over free expression online, and according to Bloomberg even considering an outright "ban on private capital participation in media," Weibo has become the kind of political hot potato that Alibaba would probably prefer to be rid of.
If the company can now exit the sector gracefully, and collect $2.1 billion on its way out, that just might be the best possible outcome for Alibaba shareholders.
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