Institutional owners may consider drastic measures as Alibaba Group Holding Limited’s (NYSE:BABA) recent $6.7 billion plunge adds to long-term losses

Key ideas

• Given the high participation of institutions in the stock, Alibaba Group Holding’s stock price could be vulnerable to their trading decisions
• In total, 25 investors hold a majority stake in the company with 38% of the capital.
• By using analyst forecast data as well as ownership research, one can better assess a company’s future performance.

To get a sense of who really controls Alibaba Group Holding Limited (NYSE:BABA), it’s important to understand the company’s ownership structure. The group that holds the largest number of shares in the company, about 42% to be precise, is institutions. In other words, the group that stands to benefit the most from a rising share price (or lose the most from a falling share price).

As a result, institutional investors suffered the biggest losses last week after the market cap fell by $6.7 billion. This group of investors may be particularly concerned about the current loss, which comes on top of an 11% loss year-over-year for shareholders. Institutions or “liquidity providers” control large sums of money and, as a result, these types of investors typically have a large influence on stock price movements. Therefore, if the downward trend continues, institutions may face pressure to sell Alibaba Group Holding, which could have negative consequences for individual investors.

Let’s take a closer look at each type of Alibaba Group Holding owner, starting with the chart below.

Check out our latest analysis for Alibaba Group Holding

What does institutional ownership tell us about Alibaba Group Holding?

Many institutions measure their performance against an index that approximates the local market, so they typically pay more attention to companies included in major indices.

As you can see, institutional investors hold a significant portion of Alibaba Group Holding’s stock. This suggests credibility among professional investors. But we can’t rely on this fact alone, because institutions make bad investments sometimes, just like everyone else. When multiple institutions own a stock, there’s always a risk that they’re in a “crowded trade.” When such a trade goes bad, multiple parties may be competing to sell shares quickly. This risk is higher in a company without a track record of growth. You can see Alibaba Group Holding’s historical earnings and revenue below, but keep in mind there’s always more to the story.

We note that hedge funds do not have a significant investment in Alibaba Group Holding. SoftBank Group Corp. is currently the largest shareholder, with 14% of shares outstanding. The Vanguard Group, Inc. and BlackRock, Inc. are the second and third largest shareholders, with 4.5% and 3.0% of shares outstanding, respectively.

Looking at our ownership data, we found that 25 of the largest shareholders collectively own less than 50% of the share register, implying that no single individual holds a majority stake.

Looking at institutional investors is a good way to gauge and filter a stock’s expected performance. The same result can be achieved by looking at analyst sentiment. A number of analysts cover the stock, so you can look at the expected growth quite easily.

Internal ownership of Alibaba Group Holding

While the precise definition of an insider can be subjective, almost everyone considers board members to be insiders. The company’s management runs the business, but the CEO is accountable to the board of directors, even if he or she is a member of it.

Most people consider insider ownership to be a positive because it can indicate that the board is well aligned with other shareholders. However, sometimes too much power is concentrated within this group.

Shareholders would probably be interested to know that insiders own shares in Alibaba Group Holding Limited. Insiders own US$2.4b worth of shares (at the current price). Most would say that this shows a good alignment of interests between shareholders and the board. Still, it might be worth checking if these insiders have been selling.

General public property

With a 41% stake, the general public, mainly individual investors, has some influence over Alibaba Group Holding. While this group may not necessarily make decisions, it can certainly have a real influence on how the company is run.

Ownership of public companies

It appears that state-owned companies own 14% of Alibaba Group Holding. It’s hard to say for sure, but it suggests they have intertwined business interests. This could be a strategic stake, so it’s worth monitoring this space for possible ownership changes.

Next steps:

I find it very interesting to know who exactly owns a company. But to really know more, we also need to take into account other information. For example, we discovered 1 warning signal for Alibaba Group Holding that you need to know before investing here.

Eventually the future is the most important. You can access this free report on analysts’ forecasts for the company.

NB: The figures in this article are calculated from the last twelve months data, which refers to the 12-month period ending on the last day of the month in which the financial statement is issued. These figures may not correspond to the figures in the annual report for the full year.

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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to constitute financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. Our goal is to provide you with focused, long-term analysis based on fundamental data. Please note that our analysis may not factor in the latest price-sensitive company announcements or qualitative information. Simply Wall St has no position in any of the stocks mentioned.

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