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Here's what you may have missed on IBD Live this week amid strong earnings from companies like Nvidia, Alibaba, and Canopy Growth.
Alibaba stock reported better-than-expected fiscal third-quarter results Thursday but the stock fell as coronavirus cases in China spiked. The IBD Live Team discusses if this pullback presents investors with an opportunity to buy low.
Alibaba issued its latest earnings report yesterday, and the Chinese eCommerce giant reported that cloud revenue grew 62 percent to $1.5 billion U.S., crossing the RMB10 billion revenue threshold for the first time. Alibaba also announced that it had completed its migration to its own public cloud in the most recent quarter, a significant milestone because the company can point to its own operations as a reference to potential customers, a point that Daniel Zhang, Alibaba executive chairman and CEO, made in the company's post-earnings call with analysts.
Alibaba Group Holding's (BABA) fiscal third-quarter 2020 earnings are driven by steady improvement in core commerce and strong cloud business.
(Bloomberg) -- Sign up for Next China, a weekly email on where the nation stands now and where it's going next.China’s highest-flying technology startups are struggling to stay afloat after the coronavirus outbreak threatened to paralyze critical venture capital funding.Investment in an industry that runs on face-to-face contact and gut instinct has fallen off a cliff since the epidemic erupted in January. Venture capital funds slashed startup investment by 60% in January from a year ago, London-based consultancy Preqin estimates. That’s because angel investors and venture capitalists accustomed to road-testing new technology or grilling entrepreneurs in person now shun interaction and work from home.China’s tech industry -- which prides itself on honing online communications from social media to mobile payments -- is thus ironically stumbling thanks to the lack of the most basic forms of human contact. If the situation persists -- and there are few signs that stringent nationwide quarantine measures will unwind soon -- that jeopardizes a swath of the millions of startups that collectively represent an important growth driver for the world’s second largest economy. It’s a double-whammy for an industry that in 2019 grappled with volatile capital, a slowing economy and U.S.-Chinese tensions.Read more: China’s 58 Home Is Said to Delay U.S. IPO as Virus Hurts Demand“As an entrepreneur who went through SARS in 2003, I fully understand the challenges entrepreneurs face,” Neil Shen, the founding partner of Sequoia Capital China, said in a statement. “We will fully stand by to provide help and support to the companies we backed in any way possible,” said Shen, regarded by many as one of the country’s most prominent tech investors.Read more: ‘Nightmare’ for Global Tech: Virus Fallout Is Just Beginning (3)A backlash against China’s tech champions in 2019 had begun damping a decade or more of go-go optimism and investment that fueled one of the fastest and largest creations of wealth the world has seen. Trade curbs imposed by Washington soured investor interest, suppressing deal flow. On a global stage, WeWork’s implosion fanned caution around potentially overblown tech valuations. The euphoria that created more than 100 unicorns, or billion-dollar firms, in China dissipated toward the end of last year.The outbreak was the last thing China’s tech sector needed.“This hasn’t been the start to the year of the rat that China was hoping for,” said Ee Fai Kam, head of Preqin Asian operations, adding that the setback is “coming on the back of a bruising 2019 when trade and tech tensions with the U.S. caused investors to exercise an abundance of caution.”Following the Lunar New Year break, some of the country’s most prolific investors – including those at Matrix Capital and Genesis Capital -- confined themselves to home, calling off meetings and mothballing visits to companies. “A lot of our projects require on-site due diligence and we are wary to push forward deals without it,” explained Snow Hua, a managing partner at Cherubic Ventures.Others are trying to engage and mitigate the damage to their existing portfolio companies through virtual conference calls. Sequoia China is planning to organize two investment sessions for early-stage startups via the conferencing service Zoom. As of Wednesday, investors from more than 50 venture capital houses had signed up.At the same time, red-hot sectors from artificial intelligence to ride-hailing and online property are reeling. On Thursday, China’s largest company by market value, Alibaba Group Holding Ltd., warned of a significant hit to revenue growth in the March quarter from an epidemic that’s wreaking havoc across broad swathes of the Chinese economy. Didi’s daily active users fell 54.1% on Jan. 27 compared with Jan. 16, before the Lunar New Year break, according to data compiled by Aurora Mobile Ltd. Read more Alibaba Warns Virus Having Broad Impact on Chinese EconomyEven those benefiting from a short-term spike in orders -- such as online grocery delivery firms -- are wary of longer-term fallout. 58 Home, the maid and home-maintenance service owned by a Chinese Craigslist equivalent, is said to have delayed its planned U.S. initial public offering after the coronavirus outbreak crippled customer demand. Others such as Uber-backed Didi Chuxing or rental startup Danke may begin to suffer as the capital winter drags on.“It’s going to be a tremendous challenge for a lot of startups,” said Wang Jun, chief financial officer for fresh produce delivery firm Missfresh. “It’s winter time for capital flow, and companies need to produce blood on their own to become cash-positive.”Read more: Coronavirus Outbreak Drives Demand for China’s Online Grocers(Updates with data on Didi’s fall in daily active users in ninth paragraph)To contact the reporter on this story: Lulu Yilun Chen in Hong Kong at email@example.comTo contact the editors responsible for this story: Candice Zachariahs at firstname.lastname@example.org, ;Peter Elstrom at email@example.com, Edwin Chan, Jonas BergmanFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- 58 Home, the maid and home-maintenance service owned by China’s Craigslist equivalent 58.com Inc., has delayed its planned U.S. initial public offering, according to people familiar with the matter, as the coronavirus outbreak cripples customer demand.The company’s pre-IPO financing round -- a private fundraising effort that started late last year -- also hasn’t been completed, said the people, who asked not to be named because the information is private. The IPO had been expected to take place in the first half of the year.Shares of 58.com Inc. fell 4.9% in New York trading, the biggest decline since September.The 58 Home’s move adds to the list of IPO setbacks amid the virus outbreak. Restaurant operator Daikiya Group Holdings Ltd. on Wednesday canceled its first-time share sale in Hong Kong, while Chinese biotech firm InnoCare Pharma Ltd. has postponed investor meetings for its planned listing in the financial hub.Read: Virus Hits World’s No.1 IPO Market as Investor Meetings ScrappedThe virus has killed at least 1,355 people in China as of Thursday. People across the nation have been minimizing personal contact for fear of contracting the disease, hurting 58 Home’s on-demand services including part-time cleaners and home handymen.“Obviously, the virus outbreak has affected home and cleaning services -- that entire sector has almost been brought to a standstill,” 58 Home said in a statement. “Our short-term revenue will be affected.”The firm declined to comment on its IPO and fundraising plans.The company added it is facing a severe shortage of maids, and 30 million people in the home and cleaning-services sectors could lose their jobs if the outbreak continues.Workers StrandedMany workers are still stranded in their hometowns, where they traveled for Lunar New Year celebrations, and haven’t been able to return to major cities after the authorities curtailed travel to try to contain the virus.To ensure the health of maids who work on its platform, 58 Home has been logging their travel history, and offering masks and temperature checks.Locally known as 58 Daojia, the company has been seeking funds to bankroll an expansion into China’s competitive online services arena. It was aiming for a valuation of as much as $2 billion in a U.S. IPO.58 Home is one of China’s leaders in helping people connect online with services from flower delivery to home cleaning. Backed by Tencent Holdings Ltd., it’s vying against deeper-pocketed rivals such as Meituan Dianping and businesses operated by e-commerce leader Alibaba Group Holding Ltd. All are targeting a slice of a market for physical, on-demand services that are being disrupted by online technology.58.com’s unit raised its last private funding round in 2015, garnering $300 million from investors including Alibaba, KKR & Co. and Ping An Group. Parent 58.com holds 68.8% of the company’s equity interest but doesn’t consolidate the unit’s financials in its own results, according to its annual filing.(Updates to add 58.com Inc. share price in third paragraph)To contact the reporters on this story: Lulu Yilun Chen in Hong Kong at firstname.lastname@example.org;Dong Cao in Beijing at email@example.comTo contact the editors responsible for this story: Candice Zachariahs at firstname.lastname@example.org, Peter Vercoe, Fion LiFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Alibaba Group Holding Ltd. warned that the coronavirus responsible for killing more than 1,300 people in China is exerting a fundamental impact on the country’s consumers and merchants, and will hurt its revenue growth in the current quarter.Alibaba, the first major Chinese technology corporation to report results since the epidemic emerged in January, said the virus is undermining production in the economy because many workers can’t get to or perform their jobs. It has also changed buying patterns with consumers pulling back on discretionary spending, including travel and restaurants.The Chinese e-commerce giant made the comments after reporting strong financial results for the quarter that ended in December. Revenue surged a better-than-expected 38% to 161.5 billion yuan ($23.1 billion), while net income rose 58% to 52.3 billion yuan.But Chief Executive Officer Daniel Zhang and Chief Financial Officer Maggie Wu were clear about the fallout from the deadly virus on employees, suppliers and merchants. Many merchants that work with the company have not been able to return to normal operations because of a shortage of employees. Alibaba’s U.S.-listed shares slid 1.8% Thursday.“The epidemic has negatively impacted the overall China economy, especially the retail and service sectors,” said Wu in a conference call after the results. “While demand for goods and services is there, the means of production in the economy has been hampered by the delayed opening of offices, factories and schools after the Lunar New Year’s holiday.”Asked about the affect on Alibaba, she voiced caution about giving estimates because it’s only halfway through the March quarter.“Overall revenue will be negatively impacted,” she said, adding that the hit to growth could be “significantly” negative.Zhang said that they are seeing relatively large changes in buying patterns. While food delivery is growing, areas like clothing and electronics are running into logistical problems. He warned that the core e-commerce business suffered a negative impact in the first two weeks after the holiday. Restaurant orders and travel bookings have also taken hits, hurting its Ele.me delivery and Alitrip businesses..“It will present near term challenges to Alibaba’s businesses across the board,” he said on the conference call, adding that there will also be opportunities.Alibaba is rolling out special programs to support merchants, including lowering the fees it charges and providing subsidies for delivery personnel. Zhang said the company is trying to keep its own staff safe, including having many work from home.Zhang said that more workers are going back to work in Beijing, Guangzhou and Shenzhen. Many logistic companies are also recovering their capacity in the past 12 days.China’s economy -- which had been showing signs of stabilization after a rough year buffered by the U.S. trade war -- has been hammered by the virus and measures to prevent its spread. Economists have been lowering their growth forecasts for the first quarter and the full year with factories shuttered, supply chains disrupted and consumers reluctant to go outside for fear of contagion.Bloomberg Economics’s scenario analysis suggests China’s first-quarter GDP growth could slow to 4.5% year on year -- a record low. “If that happens, a period of weaker imports will transmit the shock to trade partners,” according to Chief Economist Tom Orlik.Already, China’s most valuable corporation has struggled to sustain growth rates during an economic slowdown in its home market. While widespread home confinement is spurring demand for online services from grocery delivery to office apps to streaming entertainment, the disease is snarling nationwide transport and threatens in the long run to dent the consumer spending Alibaba depends on.The disruption to Alibaba’s business from the virus “may be worse than feared,” wrote Bloomberg Intelligence analysts Vey-Sern Ling and Tiffany Tam in a report. “Alibaba’s sales may contract in its core China retail marketplaces and local services business in the coming quarter even if the coronavirus outbreak subsides, as logistic and production disruptions faced by merchants could take time to resolve.”This week, the company declared a waiver of some service fees for merchants on its main direct-to-consumer Tmall platform to help those struggling with the fallout from the outbreak. That may further depress the top-line in 2020.“It was always thought that Alibaba’s core commerce revenue would have the brakes applied to it either because of China’s macroeconomic condition, or slower user growth,” said Michael Norris, research and strategy manager at Shanghai-based consultancy AgencyChina. “But what this coronavirus event forces us to do is to consider a third scenario -- where Alibaba’s revenue will take a hit from a reduction in merchant fees and advertising spend.”Alibaba has shed 1.4% of its value since a broader Chinese selloff began in January, underperforming arch-rival Tencent Holdings Ltd., which as a mobile gaming and social media operator is better shielded in the short run from the epidemic.Read more: Coronavirus Outbreak Drives Demand for China’s Online Grocers(Updates with analyst comment in penultimate paragraph)\--With assistance from Malcolm Scott.To contact the reporters on this story: Lulu Yilun Chen in Hong Kong at email@example.com;Kari Lindberg in Hong Kong at firstname.lastname@example.org;Zheping Huang in Hong Kong at email@example.comTo contact the editors responsible for this story: Peter Elstrom at firstname.lastname@example.org, Edwin Chan, Colum MurphyFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
Coronavirus updates send stocks down. Big Tesla news. Earnings results from the likes of Alibaba. What to expect from Nvidia. And why Perion Network Ltd (PERI) is a Zacks Rank 1 (Strong Buy) stock right now...
An overnight spike of nearly 15,000 in China’s reported coronavirus cases upended world markets on Thursday.
(Bloomberg Opinion) -- Investors looking at Alibaba Group Holding Ltd. earnings on Thursday are rightfully examining the March quarter outlook and parsing every word for clues about how the coronavirus outbreak will impact the Chinese company. It’s not pretty.Chief Financial Officer Maggie Wu told investors that the company’s China retail and local consumer businesses would be hit hardest. Both will bear the brunt of reduced demand and the challenge of delivering products. Customer management revenue and commissions will most likely decline, she said.This is a huge revelation.Those two divisions combined accounted for 52.4% of revenue in the December quarter. If their sales fall, China’s largest company could post its first revenue decline on record.(1)It’s also possible that other businesses, such as cloud computing and fresh food delivery, will pick up the slack, but there’s no guarantee.Chief Executive Officer Daniel Zhang described the epidemic and resulting widespread quarantine as a Black Swan event. The message: This will hurt, but it will be a one-off.Yet investors ought to examine the December quarter because it gives clues about how the e-commerce giant was faring before the COVID-19 virus appeared on the scene. Although revenue continued to grow at a respectable 38%, that was the slowest in almost four years and the smallest beat against estimates in at least a year. Its earnings-per-share beat was the slimmest in more than a year.Importantly, its bread-and-butter core commerce business, which accounts for 88% of sales, continues to weaken. This division was propped up by acquired units in the physical retail space. Stripping those out, customer management (advertising) revenue and commissions combined climbed 21%, almost 4 percentage points slower than the prior quarter and 5.5 percentage points less than a year ago. Bear in mind, the December quarter includes Alibaba’s big Nov. 11 Single’s Day bonanza, which is supposed to push revenue skyward. Clearly, this event is losing its luster. So that was all happening when the coronavirus burst onto the scene.Among the numerous problems Alibaba faces is a delay in employees returning to work after the Lunar New Year break, which was underway when the outbreak struck. This means that merchants can’t ship orders, leaving a significant number of packages undelivered. Trips made through its travel business have been canceled — with the company offering full refunds — and restaurant bookings are down. Orders for fresh food delivery have increased, though. Beyond that, the company has to bear the costs of what is best described as being a good corporate citizen. Its fintech business, Ant Financial, is waiving or cutting interest rates on loans, and executives have elected to offer subsidies to delivery personnel. It’s also making direct and indirect donations — including 469 million yuan ($67 million) in supplies it procured from around the world — and ramping up free services it already offers such as the DingTalk communications app, which is being used in online education and work-from-home situations. Executives did their best to turn lemons into lemonade. More people are integrating digital technologies into their daily lives — more than 150 million daily health check-ins have been recorded on DingTalk — and Alibaba’s ability to deliver food and supplies at the height of this emergency could make the company even more indispensable in people’s daily lives once the dust settles.If that optimistic view of the crisis plays out, then Alibaba might bounce back stronger than ever. But investors shouldn’t ignore the fact that the business was already becoming weaker before the Black Swan arrived.(1) Records begin Fiscal 2013 when the company listed in New YorkTo contact the author of this story: Tim Culpan at email@example.comTo contact the editor responsible for this story: Daniel Niemi at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
CEO Daniel Zhang said the delayed return to work following the Lunar New Year, due to the virus outbreak which has killed more than 1,350 people in China and infected thousands more, had caused problems for merchants and delays in fulfilling orders. Finance chief Maggie Wu said most of Alibaba's businesses that rely on the sale of physical goods would likely see a decline in revenues this quarter. Despite the downbeat forecast, Zhang said that as of Monday Alibaba had observed more people in large cities going back to work and logistics networks returning to normal operations.
Investing.com - Our Senior Analyst Jesse Cohen gives us his top five things to know in financial markets on Thursday, February 13, including:
Alibaba is using its 'forces of commerce and technology to fully support the fight' against the coronavirus outbreak.
The Alibaba Entrepreneurs Fund/HSBC JUMPSTARTER 2020 Global Pitch Competition Grand Finale announced the top five winners at the online event.
(Bloomberg) -- Hong Kong’s exchange faces a challenging year as the spreading coronavirus chokes off deals, adding more urgency to its efforts to convince Beijing to further open its markets and cement the bourse’s role as a gateway to China’s corporate giants.With deal makers stranded at home and large parts of the Chinese economy under lock down, no initial public offerings have priced since mid-January after an initial flurry, posing an early challenge for Hong Kong Exchanges and Clearing Ltd. to retain its spot as the world’s No. 1 IPO market.News this week that Alibaba Group Holding Ltd., which made a big splash last year with a $13 billion listing in the city, won’t be able to join the trading link between Hong Kong and mainland China also underscored the difficulties the bourse faces in forging closer connections with investors in the world’s second-largest economy. That strategy is seen as key to its future growth after last year’s failed bid for London’s stock exchange.“There’s always uncertainty and the market knows that China never committed to anything,” said Chi Man Wong, a Hong Kong-based analyst at China Galaxy International Financial Holdings Ltd. “Most of the time Hong Kong is ready, and it all depends on China.”Other initiatives such as Primary Connect, which will allow Chinese investors to subscribe to Hong Kong IPOs and vice versa, and ETF Connect, are still both up in the air and at the mercy of Chinese policy makers.Big WinAlibaba’s secondary listing was a big win for the exchange and raised hopes that more of China’s biggest companies would go the same route. The company’s exclusion from Stock Connect stems from an undisclosed agreement between Hong Kong and the mainland exchanges to keep companies with secondary listings and weighted voting rights out.“It’s up to regulators on both sides to agree on stock connect inclusions, and it’s usually the Chinese side which needs more time to think,” said Andrew Lam, director of BDO Hong Kong. “Especially with the coronavirus outbreak right now, any policy unrelated to virus control has to give way.”Alibaba Is Said to Be Blocked From Hong Kong Stock Link to ChinaAn exchange spokesman said “there have been no recent developments in how Stock Connect is structured. HKEX continues to support all developments that it believes to be in the best interests of the region’s financial markets, investors and issuers.”While deals may be in question, the virus-stoked market gyrations caused trading volumes to more than double so far this year. A respite from the 19% plunge last year as the city was rocked by pro-democracy protests, which are still showing no signs of ending.Sharnie Wong, an analyst with Bloomberg Intelligence, said in a recent report that the volatility stemming from the virus outbreak could “boost” the exchange’s first-quarter earnings.Chinese DemandIts top spot in IPOs last year can to a large degree be ascribed to major reforms two years ago, which allowed companies with dual class structures to sell shares and lifted a ban on secondary listings by Chinese companies.Stock Connect, and the demand it has created since coming online more than five years ago, is also a big part of that success. The link allows Chinese investors to buy about $15 billion in shares in Hong Kong a day, offering a key route around the nation’s capital controls for mainland investors.Underscoring the importance of Stock Connect, Charles Li, the exchange’s chief executive officer, said in an interview with Bloomberg Television in 2017 that “a pure Hong Kong listing would probably not be compelling” when asked about the potential for luring the mega IPO of Saudi Aramco.HKEX Chief Says Primary Connect a Key to Winning Saudi AramcoCompanies included in Hong Kong’s Hang Seng Composite Index are qualified for the link. But the Shanghai and Shenzhen stock exchanges have the final say on which Hong Kong stocks are eligible for Chinese buying, while Hong Kong decides on flows into the city.In 2018, investors were surprised when the mainland bourses shut the door to Xiaomi Corp. because of its dual class share structure. It then took 13 months for the mainland to approve the inclusion of dual class shares into the connect.China’s Plan to Lure Big Tech Listings Back Home: QuickTakeEdward Au, co-Leader of Deloitte China‘s National Public Offering Group, is optimistic the two parties will break the impasse this time as well. The problem with secondary-listed, dual class shares could also be resolved if the company gains enough volume locally, he said.A secondary listing can be converted to a primary listing if 55% of its total trading volume happens in Hong Kong, according to the reformed listing rule. Alibaba is also traded in New York, where its volume is about 30% higher than in Hong Kong.Alibaba’s shares slid as much as 2.5% on Tuesday’s news, before closing down 0.1%. Shares in the exchange gained 0.7% on the same day.The divergence between the benchmark and Alibaba may reflect a general understanding that almost all cross-border initiatives proposed by HKEX hinge on Chinese cooperation, said Wong at China Galaxy International.Hong Kong FSTB’s Lau Says ETF Connect Could Start Up This Year\--With assistance from Julia Fioretti.To contact the reporter on this story: Kiuyan Wong in Hong Kong at email@example.comTo contact the editors responsible for this story: Candice Zachariahs at firstname.lastname@example.org, Jonas Bergman, Jun LuoFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- SoftBank Group Corp. founder Masayoshi Son said he is considering a new type of fund for startup investing, showing his determination to keep cutting deals after missteps with WeWork and several other companies.The Japanese billionaire unveiled his $100 billion Vision Fund three years ago and had been planning on raising a similarly sized second Vision Fund. But as he discussed earnings in Tokyo Wednesday, he conceded that raising money from limited partners for the second fund has been difficult and he may instead make startup investments solely with SoftBank’s capital for a year or two.“A lot of our planned investors have been worried by the trouble at WeWork and Uber and we heard their feedback,” Son said. “So before we officially launch SoftBank Vision Fund 2, maybe we start from a smaller scale and start from a shorter period in terms of investment as sort of a bridge.”“So I’m beginning to think about that kind of two-step approach,” he said. “We have not made any official decision yet, but that’s one of the options that we started considering. Again, we have not come to a conclusion yet.”Son’s somewhat opaque comments came after SoftBank reported that the Vision Fund had lost money for the second quarter in a row, reflecting the decreased value of startups it has backed. The Vision Fund lost 225.1 billion yen ($2.05 billion) for the three months ended in December, after losing 970.3 billion yen the quarter before including WeWork and Uber Technologies Inc.”Mr. Son said that he may consider delaying SVF2 or a smaller SVF2. Given our view that SVF2 is a big risk, this statement is welcome,” said Atul Goyal, an analyst at Jefferies Group, in a research report.SoftBank set up the original Vision Fund with money from outside investors, led by Saudi Arabia’s Public Investment Fund and Abu Dhabi’s Mubadala Investment Co. But for years before that, SoftBank made deals with its own capital, including early investments in Alibaba Group Holding Ltd. and Yahoo! Corp. During the dot-com boom, Son took stakes in hundreds of internet companies.Indeed, before the first Vision Fund, SoftBank set up an entity called Delta Fund that was used for startup deals, including some that eventually were moved into the Vision Fund. Son could simply inject capital into that vehicle. SoftBank had weighed contributing $40 billion to $50 billion of its own capital for the second fund, people familiar with the matter have said.“We can make investment on our own or we can work with partners, new or existing,” Son said.He did explain that SoftBank continues to back startups with its own money.“We made several investments because we do have a very good pipeline,” Son said Wednesday. “It’s a hundreds of billions yen level.”He added that he is no longer targeting $108 billion for the second fund and wasn’t precise about what the expected size would be.“We shouldn’t be postponed too long,” he said. “First, make it a little bit smaller for 1 to 2 years, raise some bridge money, while were are building a track record. Then once we have results, I want to raise an official second fund.”To contact the reporters on this story: Pavel Alpeyev in Tokyo at email@example.com;Takahiko Hyuga in Tokyo at firstname.lastname@example.orgTo contact the editors responsible for this story: Peter Elstrom at email@example.com, Edwin ChanFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- SoftBank Group Corp.’s chairman took to the stage Wednesday afternoon to gloat about the company’s return to profit in a horrible year and to name drop some of the wonderful companies in his orbit. But the most important name of all was missing: Paul Elliott Singer. Getting top billing in Masayoshi Son’s earnings presentation was Alibaba Group Holding Ltd., which netted the Japanese company a 331.9 billion yen ($3 billion) paper gain for the fourth quarter, and telecom arm SoftBank Corp., contributor of 244 billion yen in operating profit. Sprint Corp. also added to the bottom line, though investors were more excited Wednesday about the long-awaited approval of its merger with T-Mobile US Inc.Son couldn’t escape mentioning WeWork, formally know as The We Co., because it’s the elephant in the room weighing down the Vision Fund and by extension all of SoftBank. The $100 billion fund now has 88 portfolio companies. But Elliott Management Corp., the investment firm founded by Singer, was conspicuous by its absence in Son’s vocabulary. As a result, his evasion became an unintended key feature of his entire live performance.The famous activist investor was still there, writ large in a statement titled “SoftBank Group Adopts Enhanced Governance Standards for Investments.” Just last week, Elliott confirmed it had taken a nearly $3 billion stake in SoftBank because it saw room to close the gap between the value ascribed by equity investors and what its own balance sheet indicates. That news helped drive SoftBank’s share price up 8% for the largest gain in a year, a jump that was topped just a few days later when the merger of the two U.S. telecom firms passed the final hurdle.Elliott has three key strategies that it hopes SoftBank can implement to boost the stock: a $20 billion share buyback, more independent directors, and better corporate governance, especially with regard to its investments.SoftBank’s press release on the governance, though, looks to be lip service rather than any kind of deep-seated reform. The four paragraph statement used the term standards eight times, but doesn’t actually detail what they are. We’re required to have faith that they exist and are robust. This new corporate governance policy wasn’t mentioned in the 83-page financial statement, and Son didn’t provide any details during two hours on stage. It wasn’t until two minutes from the end of Son’s set remarks that he even acknowledged Elliott, and then not by name but merely as “an activist investor.” He used the reference simply as proof that his pet peeve — that SoftBank’s share price severely lags its book value — was shared by others.Only during the Q&A session did Elliott’s name first get mentioned — by a reporter. Son’s response, and many that followed, were consistent in dodging not only Elliott’s core demands but in recognizing that the U.S. fund even had a valid point. He demurred on the topic of buybacks, noting that they'd been done in the past. He claimed to have had plans to appoint more independent directors even before Elliott brought it up. He indicated that improving standards was already on the radar.Investors hoping for some contrition after the WeWork disaster — which saw SoftBank bail out the office rental company after an aborted IPO — would be sorely disappointed. Anyone believing that Son might suddenly discover the importance of enhanced management standards is naive. In his own words, corporate governance of startups is exercised by simply not investing in a problematic company.About the closest Son got to acknowledging any weaknesses in his strategy of making huge bets on unprofitable companies in the hope they’ll come good was to admit that he’d dialed back the size of the planned $108 billion SoftBank Vision Fund 2 — a possibility I foreshadowed last month. Smaller and more circumspect bets may now be on the table.Even before this second act, investors will need to contend with the more immediate fact that the Alibaba IPO was a one-time bonus, while the rest of SoftBank’s portfolio is at the mercy of stock markets at a time when the coronavirus epidemic is sending share prices on a roller-coaster ride.So while people may have high hopes about the role Elliott could play in spurring SoftBank to change its ways, they ought to take note of the fact that Son barely utters the name.To contact the author of this story: Tim Culpan at firstname.lastname@example.orgTo contact the editor responsible for this story: Patrick McDowell at email@example.comThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Achmad Zaky spoke with unusual candor after taking the stage in Jakarta that October afternoon. People stopped chattering and lowered their phones when he began recounting the decade he spent building one of Indonesia’s most successful startups. What none of the hundreds in the cavernous hall knew then: it was his last big public act as chief executive of Bukalapak.com.Unbeknownst to the crowd, the 33-year-old self-taught computer whiz was on his way out. After a series of failed experiments and missteps -- including an abortive attempt to go toe-to-toe with Alibaba-backed rivals -- Zaky had lost his board’s confidence that he could lead a vastly expanded company into its next phase of growth. Just months away from ceding the reins of the $2.5 billion e-commerce outfit he built from the ground up, he spent much of the speech reflecting on his decade-long stewardship.“I’m not smarter than you. My success rate is maybe 10%,” he told the now-silent audience. “Back then, I was an engineer focusing on the product,” he added. As the company grew, “I was thinking I have to be a leader.”Yet some of his backers had doubts Zaky was the right person to lead Bukalapak given its current complexity, people familiar with the matter said. That may surprise industry observers for whom Zaky’s name had become synonymous with Indonesian e-commerce. He acquired something akin to folk hero status because, unlike many fellow founders, the self-effacing executive from a Java village made it big without Ivy League degrees or billions from the likes of SoftBank Group Corp.His departure in January sent a signal to Southeast Asia’s largest startups, which unlike Silicon Valley remains largely founder-driven. From Grab’s Anthony Tan and Tan Hooi Ling to Tokopedia’s William Tanuwijaya, they rode a funding boom fueled by a mobile explosion to create some of the world’s largest tech startups. But they also burned enormous amounts of cash in pursuit of growth. Now that economic uncertainty is squeezing funding and WeWork’s epitomized the perils of placing expansion above profitability, the time has come for corporate mavens to take the reins, some argue.“It’s the coming-of-age” of Southeast Asia’s tech scene, said Paul Santos, managing partner at Singapore’s Wavemaker Partners. “It’s the end of an era of unbridled ambition and hopefully the beginning of a period of sustainable growth.”Read more: Indonesia’s Newest Unicorn Now Wants to Take on the Big BoysZaky is only the second founder-CEO to leave a Southeast Asian unicorn, following Gojek’s Nadiem Makarim, who became Indonesia’s education minister. While the former’s departure seemed sudden, it was the culmination of a gradual separation, the people said, asking not to be identified discussing internal matters.Some of Zaky’s decisions rankled investors. Bukalapak -- which means “open a stall” -- succeeded by becoming the go-to bazaar for shoppers seeking bargains. But a few years ago, in his zeal to bring more mom-and-pop stores into the network, Zaky pushed too hard for ever-lower prices, disrupting market pricing and upsetting some consumer brands, they said.Later, as Bukalapak expanded, Zaky grew ambitious and tried to take on rivals like SoftBank-backed Tokopedia and Alibaba Group Holding Ltd.’s Lazada by flogging pricier goods. Bukalapak backtracked when it realized it was getting too far away from its roots. Then in 2019, he incensed followers of popular Indonesian President Joko Widodo after tweeting that the government was spending too little on R&D and suggested a new leader might beef up the budget: UninstallBukalapak becoming a trending topic on Twitter.Discussions about a changing of the guard began long before that. Zaky had talked with his board about wanting to pursue his passion of helping young entrepreneurs. But that coincided with increasing pressure for the startup to turn a profit, one reason why it announced 10% job cuts. Directors felt that, while Zaky had been instrumental in Bukalapak’s early days, the company had outgrown him and proposed bringing on an experienced executive. In December, the board appointed a successor in Rachmat Kaimuddin, a former director of finance and planning at PT Bank Bukopin that Zaky himself and a co-founder recommended.“As startup capital raising and profitability come under pressure, we should expect to see more CEO exits. Not just for under-performance, but for other reasons that were ignored under hyper-growth,” said Suresh Shankar, founder and CEO of Singapore-based Crayon Data. “Travis-like (behavioral), Adam-like (financial engineering) or Moonves (CBS, alleged sexual misbehavior) exits will become more common. Sometimes one of these causes or the other will be used as the excuse, to make company under-performance seem more palatable.”Unlike Uber’s Travis Kalanick, Adam Neumann of WeWork or CBS’s Leslie Moonves (who denied allegations of impropriety), Zaky leaves Bukalapak with his reputation largely intact. He will remain an adviser to Bukalapak while chairing his own foundation to support startups.Read more: Indonesia’s Newest Startup Unicorn Taps Mom-and-Pop StoresBorn in central Java in 1986 to school teachers, Zaky got his first PC (an Intel 486) from his uncle at the age of 10 -- the only one in his village. By the time he got to high school, he was competing in national competitions, and eventually enrolled in the prestigious Bandung Institute of Technology. There, he met Nugroho Herucahyono, with whom he started Bukalapak in his dorm room. College friend Fajrin Rasyid left Boston Consulting Group to join them in 2011.By the end of the first year, they’d run out of money and considered throwing in the towel. Then a chance meeting with Japanese venture capitalist Takeshi Ebihara revived the startup (Zaky tagged along with a friend to a meeting.) To his surprise, Ebihara offered to invest in Bukalapak. He also provided early guidance to the founding team.One of the lessons was the importance of control. Zaky was cautious about raising too much money to avoid dilution. While Tokopedia and Grab raised billions, Bukalapak raised less than $500 million from investors including PT Elang Mahkota Teknologi, better known as Emtek, Singaporean sovereign fund GIC Pte and Jack Ma’s Ant Financial.“I want to make sure I have a large stake, like Mark Zuckerberg,” Zaky said in an interview in 2016 at Bukalapak’s offices in Jakarta, decorated with replicas of bird cages to convey the Asian bazaar aesthetic and slogans like “Get Sh*t Done.”Read more: Southeast Asia’s Internet Economy to Top $100 Billion This YearZaky’s and Makarim’s exits now presage a trend. “‘It’s not about you’,” Makarim wrote in his farewell email.In his own parting memo, Zaky counted professionalizing his company among his achievements. He recounted an incident in its early days when the website went down for days and no one was bothered. By mid-2019, when the company had 2 million mom-and-pop store partners and agents and more than 70 million active users, Bukalapak had executives to run finance, strategy and operations.“I remember our early years when our management style was still ‘dormitory’ style,” he wrote. “Over time, our management has become more modern.”\--With assistance from Harry Suhartono.To contact the reporter on this story: Yoolim Lee in Singapore at firstname.lastname@example.orgTo contact the editors responsible for this story: Peter Elstrom at email@example.com, Edwin ChanFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.