Alibaba holds back as some wonder if history will repeat

Lack of clarity in e-commerce giant's prospectus has some investors questioning the timing of the listing as internet stocks begin to lose steam

PUBLISHED : Monday, 12 May, 2014, 2:58am
UPDATED : Monday, 12 May, 2014, 2:58am

To launch a successful internet or technology business on the mainland, a start-up will need to offer almost free services before it can begin making money.

That observation comes from Eric Ho, the chief financial officer of Nasdaq-listed mainland social media firm YY.

His comment is certainly a fair assessment of the tough operating environment in the mainland's online retail market, which still has a lot of untapped potential for growth.

In reality, only a few internet start-ups, such as Alibaba and JD.com are able to build up a scalable and profitable business model.

Alibaba, the e-commerce powerhouse that owns retail sites Taobao and Tmall, has filed for its listing in what could be the largest technology deal in history.

Unfortunately, the firm, controlled by charismatic one-time English teacher Jack Ma Yun, did not provide further clarity on the operating and financial conditions of its two retail sites.

Alibaba's dominant position in mainland online commerce, controlling about 80 per cent of the market, is clearly the appeal to worldwide investors looking for fundamentals in the 248-page listing prospectus.

Nonetheless, it should have revealed more data to increase transparency and ensure sound corporate governance, especially after it insisted on adopting a special partnership listing structure that gives Ma and his vice-chairman Joe Tsai, the mastermind behind the planned offering, unparalleled power at the expense of other investors.

Some fund mangers and retail investors lamented that Alibaba should have provided further details to ease their concerns about whether the high-flying company is cashing in on its share sale at a time when the US stock market may be losing steam after flirting with a record high.

The S&P 500 Index reached a record high on April 4, even though pricey technology stocks such as Twitter and Amazon have since retreated from their peaks after investors took profits.

For many, Alibaba offers impressive statistics and a good investment story. Bankers and private equity folks have praised the 15-year-old firm as a mix of Amazon, eBay and PayPal.

Now that the Hangzhou-headquartered enterprise has ventured into the global capital markets, we should not forget that in 2007 it made a timely US$1 billion share offer in Hong Kong before a sharp correction in the stock market six months later.

Could history be about to repeat itself with the US listing?