Alibaba: New CEO’s Focus on Openness, Young Leaders, and the Long Term Is Attractive

There are three new ideas in the internal letter issued by the new Alibaba BABA CEO Eddie Wu on Sept. 12 that we like: openness, young leaders and a focus on the long term. We maintain our forecasts and fair value estimates. While Alibaba is undervalued currently, we think it may take a longer time for the firm to unlock its value through the potential listings of its business units.

To adopt a “customers-first” principle, Alibaba will maximize openness and collaboration, including with traditional competitors. We think Alibaba will likely ramp up marketing on Tencent’s Weixin, but it is less likely to introduce Tmall Taobao mini programs on Weixin, as this would result in Tmall Taobao adopting Weixin Pay. This would take substantial payment market share away from Alipay under Ant Group, in which Alibaba holds a one-third stake. We think it is least likely that Alibaba’s China retail marketplaces will be allowed to use JD Logistics although it will satisfy certain customers’ needs for high quality and fast delivery. This is attributed to the fear that JD Logistics could leak customers and merchants’ data on Tmall Taobao to JD.com.

We like Alibaba’s plan to have employees born after 1985 (those 38 years and younger) and 1990 (33 and younger) as the core managers in the next four years. PDD Holdings, or PDD, is eager to promote its young employees, which in our view leads to faster reaction to the markets and innovative ideas. According to a LatePost article on July 6, Lei CHen, the PDD CEO, noted that many leaders in Duo Duo Grocery were employees born after 1990 who have fewer burdens, leading to faster decision making compared with those born after 1980 (43 years old).

Finally, Alibaba’s focus on the long term is commendable. Alibaba not only requires its business units to make judgement on trends five years or more from now, it will also establish longer-term incentive mechanisms to reward its employees.