Tags: alibaba | investors | stock | shares

Alibaba's Early Investors Can Soon Sell as IPO Lock-Up Ends

Wednesday, 18 March 2015 06:34 AM EDT

The pressure on Alibaba Group Holding Ltd.’s U.S. shares could mount this week, as many of the Chinese company’s earliest investors get a chance to sell shares for the first time.

Wednesday marks the end of the lock-up period for about 14 percent of the company’s publicly traded stock. Lock-up agreements exist to keep a company’s share price stable in the months following an initial public offering by preventing employees and pre-IPO investors from dumping the stock. The shares declined 0.6 percent to $84 in early trading.

While there’s no guarantee that they will unload the shares now, Alibaba’s investors have seen the stock slump about 19 percent this year 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.

“There are consistent concerns about fake items on the site and slowing growth in China.” said Victor Anthony, an analyst at Axiom Capital Management. “The lock-up tends to compound the situation and create price volatility.”

Demand for short-term hedges on Alibaba shares has increased this month — with the cost of one-month at-the-money options on the stock jumping 22 percent since February 27, data compiled by Bloomberg as of Tuesday show.

About 337 million shares will be eligible 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.

Price Pressure

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.

Ma’s Debut

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. While the shares are still up 24 percent since their debut, they’re near a post-IPO low and the company has lost $86.6 billion in market value since its peak.

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.

Despite its recent decline, Alibaba still fetches a premium to other Internet companies. Alibaba is trading at 17 times projected sales for 2015, while Chinese Internet competitors Tencent Holdings Ltd. trades closer to 10 times, Ebay Inc. is at 3.8 times estimated revenue for this year.

High-growth technology stocks like Alibaba are anyway 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.

© Copyright 2024 Bloomberg News. All rights reserved.

The pressure on Alibaba Group Holding Ltd.'s U.S. shares could mount this week, as many of the Chinese company's earliest investors get a chance to sell shares for the first time.
alibaba, investors, stock, shares
Wednesday, 18 March 2015 06:34 AM
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