Nearly a year after mega-IPO, Alibaba loses luster
Alibaba (BABA) co-founder and CEO Jack Ma is likely to survive his company's dip in form, with his worth estimated at around $30 billion. Still, the company's backward march since its blockbuster initial public offering nearly a year ago is at least putting a dent in his fortune, as well as attracting unwanted attention from skeptical scribes.
In a September 12 cover story, Barron's contends that Alibaba shares could plunge up to 50 percent from their current price, already felled by an ongoing economic slowdown in China, mounting Internet competition, and problems with the company's governance and culture.
"Widely hyped Chinese IPOs like Alibaba often flame out like supernovas as growth rates and profit margins suddenly decline," wrote Jonathan Laing in the 3,000-word piece, which claims the company's rapid user growth in recent years is flagging and that its efforts to branch out beyond online shopping have fallen flat. In a more serious charge, he also suggests that Alibaba is inflating its growth numbers.
The stock could come under additional pressure later this month when the lock-up on Alibaba shares expires, making 1.6 billion of its 2.5 billion shares available to investors for the first time.
The article appears to have grazed Alibaba, pushing its stock down $2.08, or 3.2 percent, to $62.60 at the close. That is well off a 52-week high of $120 and below the $68 the stock fetched in September 2014 when the company launched the biggest IPO of all time.
The decline in Alibaba's market value has coincided with heightening concerns about a Chinese economic slowdown, which analysts say could dampen consumer spending.
Jane Penner, head of investor relations at Alibaba, conceded last week at a Citigroup (C) technology conference in New York that the weakness in China is hurting the company. But she expects the downturn to be temporary, citing what Alibaba views as a solid foundation for growth in China.
"I think given the stable trends in Chinese wage growth, job creation and household net assets, we believe the consumers still have the willingness and the ability to spend," she said.
Alibaba in June announced disappointing financial results, with sales for the second-quarter rising 28 percent to $3.27 billion. That fell short of a poll of analysts by Thomson Reuters SmartEstimate who expected revenue for the period of $3.39 billion. The report also showed Alibaba's growth in online transactions grinding to its slowest pace in more than three years.
Alibaba isn't taking the Barron's story lying down. Jim Wilkinson, senior vice president of international corporate affairs at Alibaba, in a letter to Barron's on Monday took issue with Laing's characterization of the company, claiming the piece presents a misleading picture of the e-commerce firm and that it contains inaccuracies.
"Your September 12 article with the sensational headline 'Alibaba: Why It Could Fall 50% Further' lacks three key ingredients -- integrity, professionalism and fair play," Wilkinson wrote.
Specifically, Alibaba said it is fallacious for Laing to compare the company's price-to-earnings ratio, which at 39 is high for Internet players, to eBay (EBAY) because the U.S. e-commerce titan does not operate in China. Instead, the company said investors should compare Alibaba with large-cap Chinese Internet outfits such as Baidu and Tencent, whose P/E ratios are more in line with Alibaba's.
Wilkinson also said Alibaba stands by its reported growth and operating numbers. In its most recent quarter, Alibaba said it has 307 million monthly active users for its apps, a more than 60 percent increase from the year-ago period and a sign Alibaba is having some success pushing deeper into mobile commerce.
Alibaba's woes since its IPO may have taken some of the shine off its shares, but it hasn't soured Wall Street on the company's long-term prospects. UBS analyst Erica Poon Werkun expects investor sentiment toward Alibaba to rebound after the lock-up is past and as the holiday shopping season gears up, which the bank expects to boost Alibaba sales. Her 12-month price on the stock is $93, down from a previous target of $101.