19 April 2019
Alibaba employees cheer during the stock's New York listing last year. It's up 24 percent on its IPO price but down 29 percent from its November peak. Photo: Reuters
Alibaba employees cheer during the stock's New York listing last year. It's up 24 percent on its IPO price but down 29 percent from its November peak. Photo: Reuters

End of Alibaba lock-up sparks guarded optimism

Alibaba shares are ending a mandatory lock-up period Wednesday after the stock’s September 2014 listing and investors are hoping things will begin to turn around.

The shares are down more than 29 percent from their November high, although they’re up 24 percent on the IPO price.

That means about US$100 billion has been erased from the stock’s market value in the past four months.

Jerry Verseput, a small fund manager, can tell his clients “I told you so”.

Verseput, president of Veripax Financial Management in Folsom, California, who manages about US$65 million, tried to persuade his clients not to throw money at the giant China-based e-commerce company because he thinks IPOs are a gamble, especially those with a lot of hype, Reuters reported Wednesday. 

“I said if you want to go play with the money, I will do it for you but understand this is for entertainment purposes and not an investment strategy,” he said.

That was probably good advice.

Alibaba opened on Sept. 19 at US$92.70, ended its first day at US$93.89 and reached its peak on November 13, when it hit US$120. The stock closed Tuesday at US$84.50, about 24 percent above the US$68 IPO price but down 29 percent from its peak.

On Wednesday, 437 million shares will be released to the market at the end of the freeze, more than the 368 million sold in the IPO.

Some investors have come back down to earth after seeing its most recent quarterly results.

While income, excluding exceptional items, rose 25 percent to 13.12 billion yuan (US$2.1 billion) in the quarter to December 2014, sales growth was disappointing — revenue rose 40 percent from the previous year, down from a 53.7 percent gain in the September quarter.

Alibaba, which already commands 80 percent of the Chinese market and handles more e-commerce than Amazon and eBay combined, trades at a price-to-earnings ratio of about 30, compared with Seattle-based Amazon, which has a three-digit P/E.

Alibaba’s underwhelming holiday quarter performance and a public verbal tussle with a powerful Chinese industry regulator over fake goods on its e-commerce platforms helped trigger the stock’s decline.

As of Feb 27, short interest in the stock came to almost 57 million shares, or 2.3 percent of Alibaba’s outstanding stock of 2.49 billion.

That’s more than double the 21 million shares as of Sept 30 when NASDAQ began compiling data.

“Typically there is a lot of pent-up anticipation around the expiration but history shows that a vast majority of times that anticipation doesn’t manifest,” said Adam Sarhan, chief executive of Sarhan Capital in New York, who is short Alibaba shares.

“When the time comes for expiration you don’t see a big decline in the stock unless there is something fundamentally wrong or something has happened to change the investment thesis.”

Several of the biggest hedge fund managers, including Leon Cooperman’s Omega Advisors, David Tepper’s Appaloosa Management and Barry Rosenstein’s Jana Partners LLC dissolved their stakes in Alibaba at the end of last year while others reduced their holdings, according to US regulatory filings.

Other money managers, like Haft, expect more rockiness in coming months but think Alibaba will make them money.

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