Billionaire activist investor Dan Loeb and his Third Point LLC appears to have made a nice bet with his recent 4.5 million share investment in Chinese internet giant Alibaba, (BABA) which on Thursday reported a 56% increase in revenue.
The activist investor revealed late last month that he had accumulated a large stake in Alibaba during the second quarter ending June 30 because he felt the company was at a "positive inflection point" after it had made significant changes to its advertising platform over the past year.
Flash forward to Thursday - Alibaba reported that it had revenue of RMB50.184 billion ($7.4 billion), coming in well ahead of Factset estimates of $7.1 billion. The company reported diluted EPS of $0.83 and non-GAAP diluted EPS of $1.17 in the three months to the end of June. Analysts were expecting earnings of 93 cents a share. For the same quarter last year, Alibaba reported earnings of 71 cents per share on revenue of $4.6 billion.
The Chinese internet giant's shares were up 4% Thursday morning to $165.90. Its shares are up around 89% this year. The company's market value soared in June after the e-commerce firm forecast revenue to rise between 45% and 49% in the 2018 fiscal year and $1 trillion in gross merchandise value for 2020.
Third Point's reported Aug. 11 that it had a 4.5 million share position, which would be worth about $756 million at current prices. The value of the investment is up from about $634 million at the end of June. The activist investor had accumulated the position during the second quarter of 2017. That only represents about 0.1% of Alibaba's market cap, however.
With the strong results and $393 billion market capitalization don't expect Loeb will launch a director battle at Alibaba anytime soon. The activist investor only launches insurgency campaigns at a small percentage of his investments. In addition, Loeb is busy with a blockbuster campaign he initiated in June at Swiss food giant Nestle SA, which he is urging to divest a variety of divisions and liquidate a $25 billion, 23% stake in L'Oreal.
Loeb noted in his second quarter letter that he had added and subtracted from the Alibaba position over the past six years, either directly or through positions in Yahoo! and Softbank (SFTBY).
In his second quarter letter, Loeb said that he viewed recent changes to its ad platform as an "important catalyst" for meaningful revenue acceleration over the next few years. The Chinese internet giant launched an advanced targeting tool last year that would allow merchants to personalize ads based on user data profiles and browsing history, Loeb noted in the letter. Since launching the initiative Alibaba has seen a steady increase in its click-through rate on ads, he added.
A Third Point spokeswoman declined to comment on the investment.
Could Alibaba face big trouble in China?
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-- Lisa Botter and Natalie Walters contributed to this report