The View | 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.