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Alibaba (BABA) to Sell Bonds Up to $8B as Investor-Friendly Move

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Reportedly, Alibaba Group Holding Ltd. (BABA - Free Report) is planning to raise as much as $8 billion from a bond offering this month.

It plans to raise at least $5 billion through this bond sale. Though no details about the offering have been revealed yet, reportedly, the deal will be offered in multi tranches with specific tenors.

The company plans to utilize the net proceeds from the transaction for general corporate purposes.

Cash Position

As of Sep 30, 2020, cash and short-term investments totaled RMB405.9 billion (US$60 billion), up from RMB381.6 billion on Jun 30, 2020.

Alibaba generated RMB54.3 billion (US$8 billion) cash from operations during the last reported quarter. It also generated free cash flow of RMB40.5 billion (US$6 billion) for the fiscal second quarter.

Moreover, debt to total capital of the company was 11.1% (lower than the industry average of 15.1%) as of Sep 30, 2020, which is good.    

We believe that Alibaba has a strong balance sheet, which will help it to capitalize on investment opportunities and pursue strategic acquisitions, thereby further improving prospects.

Share Price Performance

Alibaba has returned 4.6% in the past year, underperforming the industry's 46.6% rally and S&P 500’s rise of 16.5%.

The share price trend clearly suggests that shareholders’ sentiments have been hugely hurt.

Reasons for the Decline

Recently, the company has been grappling with antitrust hassles and been facing intense scrutiny in China.

Last December, a probe was announced by China’s State Administration for Market Regulation to look into Alibaba’s unhealthy business practices. This investigation primarily focused on the company’s businesses dealing in e-commerce, logistics and social media.

Also, Alibaba’s fintech arm Ant Group’s planned initial public offering (IPO) was suspended, just two days before its shares were supposed to be traded. IPO was halted as financial regulators raised concerns over Ant’s suspicious micro-lending services.

These investigation and allegations have definitely been the reasons for the share price decline.

Zacks Rank and Stocks to Consider

Alibaba currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader technology sector include Alphabet (GOOGL - Free Report) , Etsy, Inc. (ETSY - Free Report) and Inuvo, Inc. (INUV - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for Alphabet, Etsy, and Inuvo is currently projected at 16.9%, 29.2% and 30%, respectively.

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