| I suspect it will actually result in a big move up in the share price, just not explosively so. The reasoning is basically this. Share price was $320 all time high preceding ANT IPO which ANT being valued approximately $300B. ANT IPO cancellation dropped 10% off BABA market cap, followed by a further tumble on news Jack Ma appeared to be missing/lying low and culminating with a single day drop of 13% when the anti-trust probe was announced. All in all we are talking about a drop of ~30%+ and 100B in market cap. If we can assume that BABA no longer relies on Pick One of Two and it's elimination as a practice doesn't materially affect sales (this is consensus) then there is really only 2 major financial impacts associated with this remaining:
The reduction in the value of ANT following restructuring and elimination of it's credit products and the fine itself. The fine isn't material, it's less than 10% free cash flow/5% net cash on hand. ANT IPO was revalued recently at about $200B, so it lost 33% of it's value. BABA holds a stake of 30% in ANT so it's investment value went from $100B to $66B, material but not drastic. So material damage is about ~$70B. However that shouldn't be deducted directly from market cap because the company isn't valued on it's net cash - that would be insane for a growth company. Instead it's generally valued using a method called Discounted Cash Flow. Effectively you estimate future cash flows and discount it by cost of cash. If you reduce net cash by $70B and run the numbers conservatively it still shows that BABA should be valued at $300-400 if trading at similar multiple to it's peers that face similar regulatory pressure, potential credit tightness and US trade relationship issues. |