Shares of Alibaba.com, the Chinese e-commerce company backed by Yahoo and Cisco Systems, rocketed nearly 200 percent Tuesday in their debut on the Honk Kong Stock Exchange. Alibaba.com, a unit of Jack Ma's Alibaba Group, had raised $1.5 billion in its initial public offering at a price of about $1.74 per share. On Tuesday, it opened on the Hong Kong Stock Exchange at about $3.86 and jumped to about $5.09 by the end of trading.
Ali Baba helps connect wholesalers, exporters, importers, retailers and manufacturers, particularly those in China and is part of a larger Internet empire, run by Ma, which also includes Taobao, an online auction and retail site similar to eBay, and Alipay, an online payment system similar to PayPal.
U.S. investors did not take part in Tuesday's trading. Because of a provision in the Securities Act of 1933, individual U.S. investors cannot buy stock in a new publicly traded foreign company until 40 days after the IPO, in this case Dec. 17. None the less, US markets had considerable interest in the IPO as two years ago, Yahoo invested $1 billion in the Alibaba Group for a 39 percent stake, and it spent another $100 million for a 10 percent stake in Alibaba.com. Yahoo stock had risen last week in anticipation of Alibaba.com's IPO but dropped Monday and Tuesday. Shares of Yahoo fell $1.43, 4.6 percent, to $29.93 this past week.
Chinese retail investors have shown considerable interest in the IPO as Alibaba.com is listed under "1688," considered a lucky combination because it sounds like "on the road to prosperity" in Chinese. But, some analysts called the stock overpriced, while a few media reports compared Alibaba to another rapidly advancing tech company Google. But certain groups of over enthusiastic brokers feel that valuations are justified at their current levels and rightly so, as any person can come to a similar conclusion by reading chart patterns made by Chinese exchanges in the past few months. Chinese markets along with the broader Asian markets have moved to higher levels and nearly all companies are trading way ahead of valuations and trading at stretched P/E levels. (Are P/E considered even key indicator? Some investors have come to disregard it given the volatility the markets have experienced in past few weeks. Dangerous sings.)But those who say valuation are on par with the Chinese market, look to one stock---Baidu. Baidu, known as the "Google of China" which began selling shares on the Nasdaq Stock Market for $66 each in August 2005 and they closed as recently as last week at $407.70. Is this valuation justified? FYI, Google is trading at $600 odd dollars after falling on the back of technology centered downtrend in the past week that saw it fall from dizzying $700 levels.
Ali Baba might just be part of phenomenon that is taking place in equity markets that makes everything connected to China…Red Hot. One wonders how many times the IPO would have been oversubscribed has US investors been allowed to apply.
On the other hand, Alibaba.com shares could fall as investors quickly sell the stock to make a profit. Some also fear that Chinese Internet companies are in a dot-com bubble that is bound to burst in the near future along with a large consolidation in the Asian markets in the months ahead. (The “Oracle of Omaha” has predicted a downslide in the markets in the months to come and has chosen to not buy into Chinese equities at the moment. He dumped his stake in PetroChina and has sounded caution to investors that tend to get carried away by enthusiasm)
Based on a calculation of the company's expected earnings this year and the stock's current price, Alibaba.com's shares are overvalued compared to its competitors and other Internet companies. So are thousands of other shares listed across Asian from HKSE to BSE, India. Is anyone selling? Cause there certainly are people buying.