Alibaba keeps analysts bullish month after IPO
Updated: 2014-10-17 06:44
By PAUL WELITZKIN in New York(China Daily USA)
Nearly a month after a successful initial public offering (IPO) on the New York Stock Exchange, shares of Alibaba Group Holding Ltd (BABA) are trading below the first-day closing price and analysts cite general market weakness for the decline.
On Thursday, Alibaba closed at $88.85, a 5.4 percent decline from its closing price of $93.89 on Sept 19, the stock's first day of trading on the NYSE. The IPO gave the Chinese e-commerce giant nearly $22 billion in capital and put the company's market value at about $230 billion, surpassing the $150 billion market cap of Amazon.com Inc, the US online retailing juggernaut.
"My observation is that the pullback is reasonable and represents a fairly normal reaction after an IPO, especially one like Alibaba," Jack Liu, senior vice-president at Chardan Capital Markets in New York, told China Daily. "I think it's only natural that some investors decided to take some profit and move the capital to something that they consider safer. I think the decline also reflects the general weakness in the market right now."
Eric Jackson, founder and managing partner of Ironfire Capital LLC, which runs a tech-focused hedge fund, said he thought Alibaba's drop is directly related to the broader weakness in the stock market, not anything specific to Alibaba. "The stock is still way above $200 billion in market cap. That's a huge win,'' he told China Daily.
Speculation on how Alibaba would deploy its new capital began even before the IPO. In late September, Alibaba spent about $457 million to buy a 15 percent stake in a Beijing-based company that provides hotels with technology software and services, continuing a 2014 acquisition spree in which the company unveiled more than a dozen deals to attract additional mobile-phone users and tap into China's booming online consumer market.
"Alibaba knows that the best way to use the capital from its IPO is to make acquisitions. I believe that it will be after bigger targets and I wouldn't rule out US acquisitions," Liu said. "The IPO is helping Alibaba to build awareness in the US so I wouldn't be surprised at all to see them purchase some American companies."
Jackson said Alibaba hasn't done anything different since its debut. "I haven't seen many acquisitions. I think the big thing investors are waiting for is the results for Q3 and Q4 (third and fourth quarters)," he added. Earlier this week in a column for Forbes.com, Jackson again speculated that Alibaba may be interested in buying Yahoo! Inc. (YHOO), which has a stake in the Chinese company.
Brendan Ahern, managing director of KraneShares, a provider of China focused exchange traded funds (ETFs), said he isn't surprised that Alibaba hasn't done a major purchase yet.
"I think after all the attention of the IPO its back to business for Alibaba," Ahern said. "They want to maintain their dominant role in mobile e-commerce. Eventually they will want to expand internationally and I think the emerging markets offer them some terrific opportunities."
As the end of 2014 approaches, analysts are still bullish on Alibaba.
"I believe it will end the year at $90," Jackson said. "That's a Tencent (one of China's biggest tech firms) like multiple based on how I think they'll finish the year in terms of their operational results. I see them going to $115 by end of 2015."
Liu said he thought Alibaba will be in line with the market's overall market performance. "If the market stages even a limited rebound, I could see the shares at or near about $100 by the end of the year," he added.
Ahern declined to provide a specific price target for the stock but said the upcoming third-quarter earnings would be pivotal. "Alibaba is one of the few companies that can provide investors with top and bottom line growth. If they can continue this trend in the third quarter I think this will draw in more investors," said Ahern.
Alibaba was founded by its current chairman Jack Ma in 1999 and has grown into one of the largest e-commerce behemoths in the world. It controls about 80 percent of China's online retail sales.