Alibaba's post-IPO hangover sets in
Online merchant has drifted from its mission of mobile e-commerce, causing market scepticism
Where do you go when the party is over? Or in Alibaba Group Holding's case, the morning after a record-setting initial public offering.
To be fair, the post-IPO trading period for overhyped tech issues has proven to be a headache for other stocks like Groupon, Zynga, Twitter and Facebook. Investors need to worry less about why the giant online merchant's share price is languishing than how it is going to escape from the orbit of overhanging insider stock and how it will sustain long-term, core institutional shareholders.
Six months after its US$25 billion listing, Alibaba's shares have languished about 30 per cent below their peak from November last year although they are still 25 per cent above the listing price of US$68. A lock-up period expires at the end of this month, ending the restriction on 437 million shares for insiders to sell. Then, there is a mountainous lock-up of more than a billion shares held by other insiders such as Yahoo and SoftBank Corp, which expires in September.
Despite the downward price pressure, it is not an unusual problem for tech firms that transition from a tightly held, private company to a widely held, publicly held entity. Fund managers use this as an opportunity to buy additional stock to make up for what they did not receive under their listing allocation. Large international fund managers such as Fidelity, BlackRock and Capital Group need to decide if and when they are going to increase their stakes in Alibaba by just as they did with Yahoo, Google and Facebook.
Alibaba needs to be regarded as a core institutional portfolio holding rather than just a Chinese internet stock in order for the share price to rise. Corporate governance policies might restrict large US mutual fund managers from buying too much stock in a listed company using a "variable interest enterprise" (VIE) structure.
Many mainland companies use this offshore entity to allow foreign investors to participate and circumvent China's investment laws. However, VIEs are controversial as they mirror the economic returns of a Chinese company while negating any voting and ownership rights of the foreign investor. Ironically, Alibaba walked away from its obligations under its VIE with Yahoo and SoftBank when it lifted Alipay's ownership away from them.
Alibaba is determined to establish multiple businesses throughout the world in order to appear like an international rather than a China internet play. However, an avalanche of press announcements based on a flurry of diversified activities has made an insignificant impact on its stock price.
Alibaba's original mission statement is "to make it easy to do business anywhere" as the world's largest online and mobile commerce firm. It is elegant and simple, but in practice, Alibaba has drifted far from it, causing scepticism and doubt.
Chairman Jack Ma Yun must stop his vainglorious hyping about living the legend of his dreams and over-promoting himself like a rock star as if Alibaba was preparing for an IPO again. In a recent presentation in Germany, he tried channelling Steve Jobs and prowled the stage wearing a dark top. Alibaba needs to solve Americans' main concern - that the company is riddled with unscrupulous vendors selling fake goods.
A recent US$200 million deal for a 1.5 per cent stake in Snapchat only drives up values in today's tech bubble. The spectacle of Alibaba and SAIC Motor seeking to develop an "internet car" seemed all too pretentious. The only project Ma (pictured) has not announced is competing with the Google owners in mining asteroids.
Even with 40 per cent revenue gains and bold initiatives, Alibaba's share price has not budged much. It appears that potential buyers are frozen by the overhang of shares. But that should be built into the current price. Instead, Alibaba is confusing investors with a business that has become a sprawling mess of contrived messages and projects.
Alibaba has no significant business in the US. Ma is not impressing or educating Americans by reconstituting the kind of stage performances he gives to his employees in Hangzhou. The only remaining US television appearance left for him is to host . With 28 million Instagram followers, reality television goddess Kim Kardashian is arguably more influential than Ma is with average American consumers.
Unfortunately, acquiring Yahoo or eBay or some other significant internet company in the US is the only way that Alibaba can become a leading internet giant outside of China.
