Alibaba Group Holding Ltd. (BABA) reported strong 3rd quarter results with revenues up 56% to 83.03 billion Yuan and net income up 34% to 24.07 billion Yuan. Earnings rose 25% to $1.63/share, but unlike revenues and net income, were slightly below analyst’s expectations according to Thomson Reuters. The Chinese internet e-commerce giant also stated that it is buying a 33% stake in its payment affiliate Ant Financial.
Alibaba’s stock price reacted negatively on the results, down 5.9%, or -$12.07, in late trading. Alibaba is currently the largest equity short worldwide with short interest of $25.9 billion. It is followed by another Chinese company, Ping An Insurance (2318 HK) at $16.3 billion and U.S. carmaker Tesla Inc. (TSLA) at $10.7 billion.
Alibaba’s stock price has been rallying since early 2016 but short sellers have continued to increase exposure to the stock as both an outright Alpha bet on an “overheated” stock and a Beta bet on an “overheated” Chinese economy. Alibaba’s short interest increased 19% in 2018, increasing $3.99 billion in January prior to its earnings release.
| Alibaba Group
(in $ millions) |
Average Short Interest | Year-to-Date
Mark-to-Market P/L |
Year-to-Date
Mark-to-Market P/L % |
| 2016 | $8,611 | -$1,084.9 | -12.60% |
| 2017 | $17,740 | -$10,730.4 | -60.49% |
| 2018 | $24,140 | -$3,901.3 | -16.16% |
| 2016-2018 | $13,711 | -$15,717.3 | -38.21% |
Since 2016, Alibaba short sellers are down $15.7 billion in mark-to-market losses but short exposure has more than tripled in just over two years. Short sellers are either convinced that rivals such as Tencent Holdings (700 HK) and Baidu Inc. ADR (BIDU) will challenge their dominance in China and Amazon.com (AMZN) will challenge them worldwide.
Short interest in Alibaba is $25.9 billion and the $12.07 price drop on 126.8 million short shares made $1.53 billion in daily mark-to-market profits today. Today’s profits covered just over a quarter of this year’s mark-to-market losses, Alibaba shorts are now down only $3.9 billion in 2018.
Increased Alibaba short selling prior to its earning release highlighted the bearish sentiment, the following are other Chinese stocks with over $100 million in short interest releasing earning in February:
| Chinese Earnings
(in $ millions) |
Ticker | Earnings
Date |
1-1-18
Short Int |
1-31-18
Short Int |
YTD S.I.
$ Change |
YTD S.I.
% Change |
|||
| Alibaba Group | BABA | 2-1-18 | $21,364 | $25,355 | +$3,991 | +18.68% | |||
| Lenovo Group | 992 HK | 2-1-18 | $589 | $641 | +$52 | +8.79% | |||
| Yum China Hldgs | YUMC | 2-7-18 | $175 | $278 | +$103 | +59.07% | |||
| Semiconductor Manuf | 981 HK | 2-8-18 | $865 | $788 | -$77 | -8.90% | |||
| Sands China | 1928 HK | 2-17-18 | $374 | $518 | +$145 | +38.76% | |||
| Sun Art Retail Group | 6808 HK | 2-20-18 | $143 | $197 | +$53 | +37.16% | |||
| MGM China Hldgs | 2282 HK | 2-20-18 | $284 | $330 | +$46 | +16.06% | |||
| Sina Corp | SINA | 2-21-18 | $61 | $101 | +$40 | +65.47% | |||
| Hang Seng Bank | 11 HK | 2-21-18 | $173 | $149 | -$24 | -13.92% | |||
| New World Development | 17 HK | 2-22-18 | $149 | $170 | +$21 | +13.93% | |||
| Bank of East Asia | 23 HK | 2-22-18 | $207 | $206 | -$1 | -0.62% | |||
| Nine Dragons paper | 2689 HK | 2-23-18 | $138 | $169 | +$31 | +22.81% | |||
| AIA Group Ltd | 1299 HK | 2-26-18 | $300 | $340 | +$40 | +13.25% | |||
| CLP Holdings | 2 HK | 2-27-18 | $286 | $291 | +$5 | +1.73% | |||
| Sun Hung Kai Properties | 16 HK | 2-27-18 | $200 | $176 | -$24 | -12.07% | |||
| H.K. Exchanges & Clearing | 388 HK | 2-28-18 | $661 | $1,090 | +$429 | +64.84% | |||
| SJM Holdings | 990 HK | 2-28-18 | $100 | $166 | +$66 | +66.39% | |||
| Galaxy Entertainment Grp | 27 HK | 2-28-18 | $236 | $266 | +$29 | +12.34% | |||
Want deeper insight into the above analysis?
Contact: Ihor.Dusaniwsky@S3Partners.net
Managing Director Predictive Analytics, S3 Partners, LLC
For more information on S3’s reporting, data and analytics solutions, email us at sales@s3partners.net
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