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Alibaba Stock Tumbles
By Paul Midler | March 18, 2008
Alibaba shares have fallen to below their IPO price. It took a few months, but, as we suggested, it was inevitable. This IPO was the largest of its kind, and it was promoted heavily by the media. At the very height of the hype - when everyone was asking how Jack Ma did it - we asked whether the company was really worth US$7.8bn. Never mind the run up that followed the stock issue; the price put on the initial offering was itself too rich.
The problem has always been with the company’s core business - Alibaba.com. As someone involved in trade and manufacturing, I didn’t get it anyway. The website is nothing more than a directory. The company collects a simple fee from manufacturers who wish to list their company’s name and details. It’s not like eBay where the website gets a small slice of every transaction. The unit’s revenue model depends on having lots of factories willing to list for a fee.
Many recent reports have claimed that factories in China are going out of business. I believe that these reports are exaggerated, but think about it for a moment. If there will be fewer factories, what would that do to revenue at Alibaba.com? The stock has fallen in part because of failed earnings expectations, but investors maybe are putting it all together. Alibaba.com’s star could not be rising if the number of factories in China is falling.
Related links:
Irrationally Exuberant: Is Alibaba.com Really Worth US$7.8bn?
Cigarette Smuggling: Alibaba & The Forty Thieves
Guangdong Manufacturers: “The Reports Of Our Death Have Been Greatly Exaggerated”
Topics: China |
March 18th, 2008 at 2:00 am
Market is down today anyway.
March 18th, 2008 at 4:41 am
Don’t think the market dropped more than 20% in one day.
March 18th, 2008 at 8:56 am
Alibaba cannot afford to let the stock sink any further. The company will buy back shares if they need to. The Chinese government can’t afford to let this stock collapse either. They have a lot of money to spend, it would be in their best interest to support the stock price.
March 18th, 2008 at 10:11 pm
That whole company is a house built of playing cards. As we discussed earlier when they first went public, how can there be such high value in a website in which a very significant number of members are merely traders in the counterfeting (cigs, pharms, luxury accessories) business!?!?!
March 18th, 2008 at 11:45 pm
Hunxuer - The counterfeiting poses a problem since Alibaba.com claims to offer its customers protection. What is the meaning of “Gold Supplier” when that supplier is selling counterfeit cigarettes. Talk about a health hazard, never mind the issue with intellectual property.
SL - I agree with you that the stock will be supported at all costs. Stock has already bounced back today. I wouldn’t be surprised if Jack Ma himself pulled a few hundred million and put it back on the table.
March 20th, 2008 at 9:50 pm
On the short side, not as well my Apple and eBay shorts, let alone my Bear Stearns short — of course I am kidding, it would’ve been suicidal though in retrospect quite profitable to short Apple in November last year.
Given the current global and HK market conditions, I don’t think the market has priced in your take on the company. If you are right that the company is nothing more than a directory, the stock has a LONG way to go, at the down side.
March 20th, 2008 at 10:06 pm
Anyone who shorted Alibaba when I told them the valuation was out of control would have made out very well.
March 21st, 2008 at 3:10 pm
Sure. But if he gets protected and tries to be market neutral, he will get creamed. A market neutral play on your takes would have been something like long Apple, eBay and short Alibaba.
Market neutral means long the good stocks, and short the bad stocks. For example, if you think Nokia will eat Motorola’s lunch, but you don’t want to bet on the market or sector conditions, you long Nokia and short Motorola. If you are right, you make money regardless if we are in a bear market or a bull market.