Alibaba split: ‘If you control the data, you control the business,’ Tematica Research CIO say

Tematica Research Chief Investment Officer Christopher Versace joins Yahoo Finance Live to discuss the tech sector, investor sentiment, the Fed’s policy pathway, inflation, and the outlook for Alibaba following news that the e-commerce company will split into six separate units.

影片文字轉錄稿

JULIE HYMAN: So, Chris, you're going to stick around. Let's talk about what's going on with Alibaba because it's pretty interesting here. The company is announcing it's going to split into six separate units in the biggest restructuring of its 24-year history. The groups range from cloud intelligence to e-commerce, and each will be managed by their own CEO and board and will have separate IPOs, potentially, eventually. This comes as the current Alibaba CEO, Jack Ma, suddenly resurfaced in China after a year-long absence.

Chris, sorry to put you on the spot here, but just to give a little bit of background on this, I mean, this seems to be pretty entirely unexpected, right, that this is happening.

CHRISTOPHER VERSACE: Yeah.

JULIE HYMAN: And it's a $220 billion company, enormous company here. And analysts seem to be saying it's been trading at depressed valuation, so maybe this would help matters. I mean, is this something you've been watching?

CHRISTOPHER VERSACE: So, you know, we have seen companies do spin-offs before to unlock, you know, value. Kellogg's is going through this right now itself, and I remember several other companies have tried it in the last few years. And typically it tends to work because you're able to really isolate the value through, like, a peer valuation, sum of the parts valuation, if you will, and it tends to be very positive.

I guess the question I would ask is, you know, why now, right? That's always what's the catalyst, the thinking behind this?

But I also find it a little fascinating because if I remember the news this morning, Google is asking for a lawsuit to be dismissed where they're trying to break it up and-- break its adtech business up into different pieces. So it's quite interesting to me that a Chinese company is doing this while some of our companies are trying to stay together.

BRAD SMITH: Right. Well, at the same time, it's also if this does-- well, as it is moving forward, what does this mean for the data? Is one customer-- one part of the business's customer versus now having some ties into all of those businesses, and what are the synergies that they might lose out on as a result of this?

CHRISTOPHER VERSACE: That's a wonderful question for the conference call, if there was one, because, I mean, as we know, right, the data is key.

BRAD SMITH: Yeah.

CHRISTOPHER VERSACE: Right? If you control the data, you control the business. So I have no idea, but I think that's a great point, Brad.

JULIE HYMAN: Well, then to broaden it out, of course, the other big factor here is China and the Chinese government and its involvement in the company and the speculation that it had something to do with Jack Ma's vacation after he was critical of the company. And so just to broaden it out, I'm curious if you're looking at China stocks at all and an interesting place right now or if it's just something you want to stay away from because there are uncertainties about the relationship between the US and China, about China regulation still. What's your thinking?

CHRISTOPHER VERSACE: So there's direct and indirect ways to play China, right? So, you know, you could buy Chinese stocks. We've always shied away from that in the Action Alerts PLUS portfolio. Rather the reopening of China, I think, is far more interesting. We do have several positions for that, including, you know, Coty, which is, you know, doing very well as luxury demand rebounds. So that's the way that we would play it.

And you have to remember too that whenever you deal with international companies, you always have to reconcile the accounting back. So I think it's easier for the average investor, the individual investor to either do it through, say, ETF vehicles or through ADRs because they file with the SEC.

BRAD SMITH: You don't own Alibaba, but for someone out there who does and they're reading this news this morning, I mean, what are they to make of this at the end of the day?

CHRISTOPHER VERSACE: You know, I think you need to understand the new structure and exactly what it means, but it's a possible opportunity. Like we said before, there are numerous cases in the past when this happens that value gets unlocked. But the question is as this separation occurs, you know, how many shares are you getting in each business? Is that part of the strategy? And then you have to decide, you know, which of the six do you want? Do you want all of them? Do you want some of them? So there's really a lot more questions.

BRAD SMITH: Chris--

JULIE HYMAN: Thanks for playing along--

BRAD SMITH: Yeah.

JULIE HYMAN: [LAUGHS] On the fly with that one.

CHRISTOPHER VERSACE: Happy to do it.

JULIE HYMAN: Appreciate it.

BRAD SMITH: Absolutely. Thanks for coming and joining us in studio live in living color. Chris Versace, Tematica Research chief investment officer, thanks so much for joining us.

CHRISTOPHER VERSACE: Thank you.

BRAD SMITH: Absolutely.