Japanese tech investment giant SoftBank Group and Chinese e-commerce giant Alibaba are nearing the end of their long partnership. SoftBank had effectively sold or financed its entire remaining stake in Alibaba, chief financial officer Yoshimitsu Goto told reporters after the group announced its performance on May 11.
As for the portion of Alibaba’s shares that SoftBank still previously held, Goto said the company had financed the shares with cash through financial instruments such as “prepaid forward contracts” and other means. This means that SoftBank has actually sold these shares but has the right to buy them back at a later date.
According to SoftBank, over 23 years, its 7.4 billion yen investment in Alibaba turned into 9.7 trillion yen. Based on the current exchange rate, the investment of $54.5 million turned into $71.5 billion.
When Alibaba Was Unknown
SoftBank’s support of Alibaba for over two decades created an era for Alibaba and the Chinese internet.
Masayoshi Son, SoftBank’s chief executive, first backed Alibaba in 2000 when SoftBank Group invested $20 million in it when it was a small, unknown company less than a year old.
It is widely rumored that Son made the decision within minutes of meeting Jack Ma, the founder of Alibaba.
In 2004, SoftBank made an additional investment in Alibaba. After several rounds of adjustments, it holds as much as 34.4 percent of Alibaba’s stock. With SoftBank’s longtime support, Alibaba not only became China’s e-commerce leader but one of the world’s largest technology companies.
Japan’s SoftBank Group Corp Chief Executive Masayoshi Son attends a news conference in Tokyo, Japan, Nov. 5, 2018. (Kim Kyung-Hoon/Reuters)
Alibaba was listed on the New York Stock Exchange on Sept. 19, 2014, with an opening price of $92.7. At its peak in 2020, Alibaba’s stock hit an all-time high of $317 a share, and SoftBank’s stake was valued at over $200 billion. SoftBank only partially reduced its stake since Alibaba went public.
Crackdown on Chinese Tech Companies
As a result of the Chinese Communist Party (CCP)’s crackdown on Chinese tech companies over recent years, technology stocks moved into a bear market. Alibaba’s share price has been on a downward slide since late 2020 after a planned listing of its affiliate Ant Group was halted by the CCP’s regulators.
In mid-April, a U.S. Securities and Exchange Commission filing showed SoftBank’s remaining stake in Alibaba was only 3.8 percent. SoftBank has sold down its stake in Alibaba in a near-liquidation fashion. Documents provided to The Financial Times by The Washington Service, a data provider, show that over the past 14 months, SoftBank has reaped an average of $92 per share from the forward sale of 389 million Alibaba shares.
The average earnings per share are not only well below the all-time high of Alibaba’s stock price but also below its opening price on the day of its initial public offering in 2014. In other words, SoftBank’s return on its investment in Alibaba for more than eight years is close to zero.
SoftBank said that Alibaba’s deal reflected its shift to “a defensive mode” in response to a more uncertain business environment.
“We are bolstering our financial stability by increasing our liquidity on hand by raising cash.”
A woman walks past an Alibaba sign outside the company’s office in Beijing on April 13, 2021. (Greg Baker/AFP via Getty Images)
The SoftBank sell-off comes at a critical time for the Japanese group, which is planning to list another of its investments, Arm, a British chip design company.
Meanwhile, SoftBank reported a record annual investment loss of 5.3 trillion yen ($39 billion) on its Vision Funds on May 11.
Times Have Changed
The Alibaba of today is very different from the Alibaba of Jack Ma’s era. On March 28, Alibaba announced that it plans to split into six business groups, each of which will operate independently and may go public.
Each business group will have its own CEO and board of directors, implementing a CEO responsibility system under the leadership of a board of directors.
Alibaba Group will become a holding company, with Zhang Yong in charge. The move marks the final unraveling of a business empire that Ma spent more than two decades building.
Dreams of an ‘Alibaba Economy’
Ma once envisioned an “Alibaba economy,” in which subsidiaries and affiliates worked closely together. Since Ant Group’s listing was halted, however, this concept has barely been mentioned within the company.
Ma stepped down as Alibaba’s chairman in 2019 and continued to serve as a board member. A year later, he was no longer even an ordinary group director.
During the CCP’s several years of clampdown on China’s internet companies, Ma had largely kept a low profile, spending much of his time overseas.
In Alibaba Group’s most recent annual report released in July 2022, Ma was listed only as a partner of Alibaba.
Jack Ma, then CEO of Chinese e-commerce giant Alibaba, speaks during his visit at the Vivatech startups and innovation fair in Paris on May 16, 2019. (Philippe Lopez/AFP via Getty Images)
Ma once said that founding Alibaba was the biggest mistake he had ever made.
“My biggest mistake was that I made Alibaba. I never thought this thing would change my life,” Ma, then Alibaba CEO, said at the International Economic Forum in St. Petersburg, Russia, in June 2016.
“I was just trying to run a small business, yet it grew so big and brought about so much responsibility, as well as so much trouble.”