Third Point Enters Alibaba (BABA) and JD.com (JD) on China Jitters

(Updated - August 6, 2020 12:17 PM EDT)

Dan Loeb's Third Point hedge fund said they took advantage of jitters about China’s relationships with Hong Kong
and the U.S. as a chance to establish new positions in Alibaba (NYSE: BABA) and JD.com (NASDAQ: JD).

Loeb said their outlook on the broader Chinese e‐commerce market remains "bright". They see GMV growing at a mid‐teens CAGR over the next five years, propelled by: "(1) rising consumption per capita, as the Chinese retail market is equal in size to the U.S. despite four times as many consumers, and (2) increased penetration of retail by online, a trend which we believe has been structurally accelerated by the COVID‐19 pandemic."

As the market matures, they see both companies leveraging scale and their growing repositories of transaction data to increase monetization. The firm notes that brick‐and‐mortar retail store rent expenses in China are greater than 10% of sales on average, "which provides a significant umbrella for online marketplaces to take a greater share of GMV through a combination of commission and advertising spending as online retailer cost structures converge with brick and‐
mortar retail."

Lastly, the firm is excited about some of Alibaba’s non-core businesses, particularly the cloud computing business,
Aliyun. They said Aliyun today resembles Amazon’s AWS business five years ago. Also, Ant Financial - which Alibaba holts a ~30% stake - plans to go public this year. Further, Alibaba shares will benefit should they become accessible to mainland Chinese investors through inclusion in the Southbound Connect.

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