What Alibaba Hopes to Achieve with Its Stock Split – Market Realist

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What Alibaba Hopes to Achieve with Its Stock Split – Market Realist

Alibaba’s stock split

Alibaba (BABA) has announced a one-to-eight stock split. The company is reportedly planning a Hong Kong listing that could raise almost $20 billion for the Chinese e-commerce giant. The company is slated to propose the stock split to shareholders at its upcoming annual general meeting, which is scheduled for July 15 in Hong Kong.

What does it want to achieve?

In its filing, Alibaba said, “Among other reasons, the one-to-eight share subdivision will increase the number of shares available for issuance at a lower per-share price, and the Board of Directors believes that this will increase flexibility in the Company’s capital raising activities, including the issuance of new shares.” Generally, companies split their stocks when the stock price gets too high. Stock splits help create liquidity in the stock, as more retail investors can then consider buying the stock. In the past, companies like Apple (AAPL) have also announced stock splits.

On the other hand, if the stock falls too low, companies tend to do a reverse stock split. A low enough price results in delisting, so companies do a reverse stock split to avoid delisting on the exchanges. With the stock split, Alibaba could hope to attract more interest in its Hong Kong listing. Although Alibaba has pared some of its 2019 gains as Chinese stocks have come under pressure amid the escalation in the US-China trade war, it’s still up 15.3% for the year.

China’s online retail sales increased by 17.8% year-over-year last month. The country’s May retail sales data was better than expected, but its industrial production and fixed asset investment data disappointed. Meanwhile, while the retail sales data looked strong, analysts don’t see that as an indication of a revival in the Chinese economy. Read China’s Retail Sales Beat Expectations—Here’s Why for more analysis.

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