Shares of Alibaba (BABA) rose more than 11% Tuesday after the Chinese e-commerce and cloud giant announced it was boosting the size of its share buyback program from $15 billion to $25 billion.
Stocks typically go up on buyback news because repurchases lower the total number of shares outstanding, which boosts earnings per share. Investors also like to see companies invest in their own stock because it can send the signal that management believes the stock is a bargain.
Alibaba said as much in a press release.
“The upsized share buyback underscores our confidence in Alibaba’s long-term, sustainable growth potential and value creation. Alibaba’s stock price does not fairly reflect the company’s value given our robust financial health and expansion plans,” said the company’s deputy chief financial officer, Toby Xu.
This is the second time in the past year that Alibaba has increased the pace of its stock purchases. The company raised its buyback target from $10 billion to $15 billion in August.
Alibaba has plenty of cash on hand to buy shares, having ended December with more than $75 billion on its balance sheet.
Alibaba shares have surged 50% over the past five days. Investors are hoping that recent signs from Chinese president Xi Jinping about a loosening of restrictions on Chinese tech companies in an attempt to lift the country’s stock market and economy will improve sentiment.
But the stock is still down more than 3% this year and about 50% over the past 12 months.
Shares of Alibaba, along with rival JD (JD) and other top Chinese firms Tencent (TCEHY), Baidu (BIDU) and Nio (NIO), have been incredibly volatile due to concerns about a resurgence of Covid in China and fears that it could be delisted in the United States as regulators look to crack down on Chinese companies. Another prominent investor is also extremely bullish on Alibaba. Charlie Munger, the 98-year old vice chairman of Warren Buffett’s Berkshire Hathaway (BRKB), has been buying more Alibaba shares for his own company. Munger’s Daily Journal (DJCO), a newspaper publisher and investing firm, boosted its stake in Alibaba earlier this year. Speaking at the Daily Journal annual shareholder meeting last month, Munger did not specifically comment on Alibaba but said that he sees more value in China than in the US stock market. He praised the Chinese government for taking more steps to modernize its economy.