News of Jack Ma giving up control of Ant Group has sent Alibaba (NYSE:BABA) stock into a downward spiral today. According to sources close to him, the Alibaba founder and CEO has confirmed he plans on ceding control fintech giant Ant Group. This decision comes after significant pressure from China’s regulatory agencies.
In 2020, the Chinese government dealt Ma a blow when it halted Ant Group’s initial public offering (IPO). Since then, the company has faced plenty of other hurdles. And while Ma stepping down may help the company turn around, it hasn’t Alibaba today. BABA stock has been falling since markets opened today.
BABA Stock and Ant Group
Ma’s primary company has had a difficult trading day following the news. BABA stock began the day by plunging, only to rally again around midday. It’s been climbing slowly upward since then but remains in the red by 2%. This comes on the end of a difficult month, during which the stock has shed almost 14% of its value. The stock shot up 3% two days after Alibaba announced it would be allowing more Chinese investors to buy into it. But today’s declines have wiped away any gains.
Ma relinquishing his position at Ant Group makes sense. The company likely wants to pursue the IPO it was denied and new leadership may be the best way to make that happen without significant government interference. The Wall Street Journal reports that “Mr. Ma doesn’t hold an executive role at Ant or sit on its board, but is a larger-than-life figure at the company and currently controls 50.52% of its shares via an entity in which he holds the dominant position.”
For Ma, ceding control would likely mean transferring some of this power to another executive. AJ Bell financial analyst Danni Hewson commented on Ma’s move to step down from Ant Group. As she sees it, reactions Wall Street will be mixed:
There will be some who will think that potentially this clears the way for Ant to put the past few years behind it and try to get out on the front foot. There will be others who will be deeply concerned about what comes next because Jack Ma has been such a powerhouse.
What’s Next for Alibaba?
That said, it seems inevitable that Ma would have ultimately needed to give up control of Ant Group. The pressure from China’s government has been increasing steadily throughout recent years. The charismatic business has leader has adapted a much less outspoken persona since regulatory crackdowns from his government began. This suggests that since the IPO halting, he has accepted that he needs to play by their rules if he wants to remain in business.
With less responsibilities, though, he will be better positioned to focus on Alibaba. For that reason, his relinquishing control of Ant is ultimately good news for investors. BABA stock is still recovering from a difficult year but that doesn’t mean it can’t rise again. The company recently saw a 12% year-over-year (YOY) cloud revenue increase. And while it also posted slow growth, InvestorPlace contributor Tezcan Gecgil notes that analysts’ 12-month median price forecast remains at about $150, a significant jump from its current price of $100.55 per share. The promise of more attention from its leader makes this beaten down stock a worthwhile bet.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.