Alibaba Slips as Earliest Backers Become Free to Sell

Alibaba Group Holding Ltd. was little changed in U.S. trading Wednesday, the first time many of the Chinese company’s earliest investors were able to sell.

March 18 marked 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.

The shares fell as much as 1.4 percent before recovering in late trading. Alibaba’s has retreated 29 percent from a November high, after a Chinese regulator accused the company of peddling knock-offs, Taiwan ordered Alibaba.com to leave over alleged investment violations, and the latest quarterly revenue fell below expectations.

“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 rose 9 cents to $84.59 in New York, with volume more than triple the average over the last three months. The shares are up 24 percent since their September debut.

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.

Price Pressure

About 337 million shares were released for sale beginning Wednesday. 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 Wednesday’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,” he said.