KraneShares' Ahern on Alibaba Earnings, Stock Buyback (Audio)

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Ali Baba on fire today. It looks like jack Ma's diversification strategy is starting to pay off, as revenue at Ali Baba Group Holding accelerates to the fastest since its record initial public offering share price of five dollars and thirty four cents right now ninety two dollars and sixties six cents. And we're very happy to welcome back Brendan Hearn.

He's chief investment officer at Crane Shares. Ali Baba is the number one position of Crane Shares c s I China Internet et F ticker symbol k w EB just rated five stars from Morning Star and as Brendan Nister minus or the last three years, they've beaten the SMP five hundred by holding Chinese stock, So welcome back, Thank you, Cather. So, first of all the news on Ali Baba. What did

we find out today? Three key takeaways? Some of the parts companies buying back stock and lastly the cloud computing. So some of the parts. What I mean is Ali Baba is breaking out the different divisions for the first time, we're able to apply a growth rate. Analysts are going to be upgrading this stock over the next several days, I believe, based on aggregating these different divisions. UM secondarily

was buying back stock over five billion dollars. And lastly, they're cloud computing is about to go profitable uh fousand paying customers and as we've seen with Amazon with a WS, the ability to drive that drive the stock potentially significantly higher. Why the buying back stock? Why do that? I mean, if you're a young company and you're supposedly a tech company, why can't they invest that money in things that will

grow in the future buy back the stock. All it ends up doing is making the earnings look better mathematically because you take the shares out of circulation and stick him in the treasury. That that's a valid point of him UM. At the same time, the stock has been affected by broad China news. Last summer's Onshore equity market rolled over. Ali Baba has nothing to do with the Shanghai and shenz En stock exchanges, but the stock came down, but they got a lot to do with how business

in China is doing well. Look at this past January where the implementation the circuit breaker affected, uh, the onshore equity market Shanghai Shen's and Ali Baba stock got crushed. So you you have investors the Ali Baba baby goes out when when the China water gets thrown out, and um, there's there's Ali Baba has nothing to do with with the Chinese stock market. It's so then why list there? So go ahead and just list here in the United States.

So list in London, list somewhere outside of China. I mean, there are a lot of ways to accomplish what you're talking about without buying. It just seems odd when you're talking about a growth company, a tech company, doesn't it kind of make you question, g don't they have anything better to do with that five billion? Well, and I think you know you I p O was priced at sixty eight dollars, It got up to one twenty, it

came all the way back down below seventy. The stock you're talking about a company that's growing the top line at over thirty percent. Me in here were one quarter you know, long term growth rate over this stock was just so inexpensive that I think the management bought it. I love that that that the company is buying back to stock and that the the CEO and the management team. UM is on the same time of the same side of the table as me as an investor talk to

us about cloud computing. When I, you know, I think we will think of the competition and people trying to get and you think of Microsoft, Do you think of Amazon? I don't know if Ali Baba is the first name that comes to a lot of minds, what are they doing there? And why is that impressed analysts? What you say,

are gonna upgrade Ali Baba? Now, yep, no, certainly, UM Ali Bamba is the primary businesses is in China basically selling to Chinese companies themselves, and and what they're looking to do is to take advantage of the very very advanced kind of technology ecosystem in China. Just as kind of Amazon is really you know, competing with Microsoft and others and with their AWS division, Alibaba is basically bringing

that playbook to China. They've had a great level of success in a short period of time, over five thousand paying clients. UM it's it's it's about to start to hit an inflection point where it's going to be monetized, and the company guided that they believe they can have over a million million paying customers within a year. Ali Baba is not just in the delivery business, right, They're not just a broker products and services. They're trying to

get into a lot of other businesses. Do you foresee a time when they're going to split those businesses off into separate units? Well think to some degree. And financial um, which is the equivalent of say like a PayPal um. It's it's I would argue, it's beyond what PayPal. It's ubiquitous in China. Uh it used to be called ali pay and and and financial um. Ali Baba has a thirty eight percent ownership position that's going to go public. I believe in probably about a year's time listening exchange

to be determined. UM. But but I do think and and coming out UM was part of the value that some of the parts idea. So in terms of growth are Bloomberg News story points out that you know you can they they are the may the big thing in China, but they've got still got growth in users, big growth in users. Yeah, I mean one of the one of the statistics I love is the utile is Internet utilization right here in the United States is nearly we would over fifty percent in two thousand two. China just went

over fifty percent utilization Amazon stock. Back in two thousand two, when the U S went over fifty percent, utilization was at six dollars. So unless you have a DeLorean out front, you're able to get into um China internet and e commerce companies UM at basically at a fifty percent, and that that numbers are only going to go higher. And that's why we're quite bullish, and that's self serving and highly biased. But as Somaly, as a shareholder myself, I'm

a big believer in k Web. Now, the position that you hold in ali Baba is not a reflection of an actively managed decision making process. Correct, So how do you foresee the role of ali Baba in an index when it is so dominant a position? Well, ali Baba is certainly a big, big beneficiary of what we believe is with the top down policy, where where China's economy as a barbell, you have export driven manufacturing adversely affected

by tep global growth. Global growth at the same time domestic consumption is doing very well in China so well as much as um I love Ali Baba, Um, I love ten Cent, ten Cent, the Facebook of China with their reach out application. I love c Trip, the the c Trip business a monopoly on online travel in China. Say they bought two of their largest the number two and number three players. They have a monopoly. Um, there's great.

J D dot Com just reported a few days ago Great Great earnings Sina and Wi bo Um Great earnings. That this is the top down macro issue, and that's where we love the basket approach. We love diversifying. Tell me about the top john macro. Great. Obviously, there's plenty of Chinese consumers, workers, people are making money. We know a large part of China is still a poor country. And you know they had a slow down. And again I think the big industrial production numbers out of China

tonight that's and pulling back a bit. So it's so fascinating, isn't it that I guess only the only part of China's economy to do well to spur this kind of growth for a company like Ali Bab, And you can only manage what would happen if the rest of the country could kind of digive itself out of poverty. Well, certainly,

China of the population lived in cities today. It's that correlation is one between GDP per capita and China's urbanization, the movement of people into cities UM in China, proper housing, UM, access to healthcare, education, the becoming a middle class. And

then there's there's third definition of middle class. So certainly, you know, there are liabilities on the China balance sheet, but at the same time, there's a there's assets, and we believe that there are concerns around mpls and banks and the X what's going to happen with overcapacity and coal stealing Alunum. Yes, what, I don't want to hold them.

I want to hold the part of China that is growing and we get industrial production tonight, Kathleen, I'll be up on my terminal, but we to get retail sales. And retail sales has averaged ten month. You know, the monthly number for July. I think it's going to be a really number year over year, so it's pretty amazing off of the month. That's true. That's true, Um, But yeah, we know we love the retail sales and in China where your smartphone is your primary source of entertainment and

increasingly et commerce. UM cell phones in China are very very big for a reason because they spend a lot of time on them, and certainly we see more as Ali Baba demonstrated today, there's there's there's something going on in China. I think that narrative is very early in it being told. Thank you very much for coming in and spending time with us. Brendan Hearn is the chief investment officer for Crane Shares. It can be followed on Twitter at crane Shares That's with a K and talking

about Ali Baba reporting results that exceeded analyst estimates. Some say it is a stellar report card, reporting quarterly results that beat estimates on all fronts. Sales during the last quarter grew fifty nine percent, the fastest growth since it was listed in New York in twenty fourteen. This is taking Stockheim pim Fox along with my co host Kathleen Hayes. This is Bloomberg