Alibaba's Earliest Backers Can Soon Start Selling SharesLeslie Picker and Spencer Soper
Alibaba Group Holding Ltd. fell in early trading Wednesday, the first time many of the earliest investors in the Chinese company were able to sell shares.
Today marks the end of a six-month lock-up period for about 14 percent of the company’s publicly traded stock. Lock-up agreements exist to keep share prices stable in the months following an initial public offering by preventing employees and pre-IPO investors from dumping the stock.
Wednesday’s losses have contributed to a 30 percent slump from a November high as bad news piled up. A Chinese regulator accused the company of peddling knock-offs, Taiwan ordered Alibaba.com to leave over alleged investment violations, and Alibaba’s latest quarterly revenue fell below expectations amid a decelerating Chinese economy and competition.
“People who bought Alibaba pre-IPO will be happy to get out now,” said Josef Schuster, the founder of IPOX Schuster LLC in Chicago. “It’s still way above the IPO price and doesn’t look cheap here.”
The stock was down 1 percent to $83.63 as of 11:01 a.m. in New York. At that price, the shares are still up 23 percent since their debut.
Even after the recent decline, Alibaba still fetches a premium to other Internet companies -- trading at about 17 times projected sales for 2015. Chinese competitor Tencent Holdings Ltd. trades closer to 11 times expected sales, EBay Inc. is at 3.7 times estimated revenue for this year.
About 337 million shares are eligible for sale beginning today. Another 100 million that are also being released are subject to separate employee trading restrictions that could prevent them from being sold until May.
At the time of its IPO, Alibaba locked up 80 percent of its stock, and today’s expiration is the second time shares have become available to sell. The first, in December, was for less than 1 percent of the stock, and the third will be one year after the September IPO, when another 1.6 billion shares become available.
The amount being unlocked this time only represents a month of trading and will be absorbed quickly, according to Wedbush Securities Inc.’s Gil Luria.
“Since many of the investors that are getting unlocked are experienced institutional investors, they are unlikely to sell in a manner that puts pressure on share price,” said Luria, based in Los Angeles.
Just six months ago, Alibaba co-founder Jack Ma was standing on the floor of the New York Stock Exchange, watching Alibaba surge 38 percent after the biggest IPO on record.
Analysts are expecting Alibaba to reach $110 a share over the next year, according to the average of 35 estimates compiled by Bloomberg.
That doesn’t mean it’ll escape selling, said Donald Dion, president of DRD Investments, a family firm in Naples, Florida that has tracked data on lock-up expirations. High-growth technology stocks like Alibaba are more susceptible to near-term declines surrounding lock-ups, said Dion, who has a short position on Alibaba.
“We think Alibaba will trade down in anticipation of the lock-up and possibly when it unlocks,” he said, ahead of Wednesday’s trading.
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