Alibaba’s $10 Billion Mistake: Why Burry Says the Stock Must Crash 50%
(SeaPRwire) – By: Maxwell Vance
Dilution is the silent killer of long-term value. Michael Burry sees the rot immediately. He exited Alibaba because the board is asleep at the wheel. They are printing shares like confetti. They call it strategic investment. We call it shareholder theft. The Scion Capital founder knows a value trap when he smells one. He was made famous in “The Big Short.” He bet against the US housing market. Now he is betting against Alibaba’s management. He is moving capital to JD.com. That is a smart pivot. It signals a preference for the asset class. It shows a rejection of the specific operator. Alibaba is chasing a mirage. They are desperate to catch up in AI. They are using the balance sheet to do it. Burry criticized the shares as overvalued. He is being polite. They are toxic. The market is punishing the arrogance. American Depositary Receipts are down 18.6% this year. They fell 8.6% on Friday alone. Hong Kong shares are down 13.9%. The trend is clear. The smart money is leaving the building.
The press release screams innovation. They announced a plan to raise HK$80 billion. That translates to $10.2 billion. It is a massive sum. It would be Hong Kong’s largest follow-on offering on record. They claim the funds are for AI investments. The narrative sounds futuristic. The underlying math is archaic. Look at the quarterly report. Profit declined 75% for the quarter ended in June. The numbers are catastrophic. They ramped up AI-related capital spending. The returns are not there. Burry said he cannot bless share issuances. He expects return on invested capital to keep declining. He is reading the footnotes. Management is reading the hype cycle. They are sacrificing current earnings for a promise. That promise is getting more expensive every day. The 75% profit drop is not a blip. It is a warning shot. It proves the model is breaking under the weight of R&D. Investors are spooked for a reason. The future returns from the Chinese tech sector are in question.
The execution of this sale is clumsy. The Chinese firm priced the offering at HK$112.70 per share. The Hong Kong market closed at HK$123 on Friday. They offered a discount. The market still balked. Investors see the dilution risk. Burry had disclosed a position in April. He planned to hold. He planned to move back after a month or two. He changed his mind. He said “No longer.” The structure of the deal broke the thesis. He added that the share price would have to fall by half. That is a 50% devaluation requirement. It is a harsh judgment. It implies the current price is still double the intrinsic value. The timeline is tight. He bought in April. He sold before the Sunday pricing. He avoided the bullet. The offering is a transfer of wealth. It moves money from existing holders to new ones. It funds a gamble that might not pay off.
The board needs to halt this madness immediately. Cancel the share sale. Focus on the core commerce engine. The AI spending is a black hole. It is swallowing capital without showing returns. The management team has lost discipline. They are reacting to peer pressure. They are not leading. Burry’s move to JD.com is a roadmap. It shows where the value lies in the sector. Alibaba is becoming a conglomerate discount for a reason. The capital allocation is broken. Until they stop printing shares, the stock is uninvestable. The only cure is a drastic cut in spending and a share buyback.
Author bio: Maxwell Vance, a hedge fund manager specializing in distressed asset acquisition and proxy fights.