Bottom line: Alibaba will to focus on globalization to maintain momentum for its overvalued stock, but the shares are likely to pull back in the first half of next year due to overvaluation.
This year’s November 11 shopping day belonged to e-commerce leader Alibaba (NYSE: BABA), even though I’m just slightly reluctant to write too much about this overhyped company. But I would be remiss if I didn’t mention some of the impressive numbers that Alibaba logged during this year’s Double-Eleven Singles Day event, led by its headline total sales of 57.1 billion yuan ($9.3 billion), up 63 percent from last year. The market didn’t seem too impressed with the growth, with Alibaba’s shares tumbling 3.9 percent in the US trading day after the end of the Chinese shopping binge.
True to form, Alibaba put out a nonstop stream of updates during the shopping day, telling anyone who would listen how much it had sold on its e-commerce platforms numerous times over the 24-hour period. At the same time, marketing savvy founder Jack Ma was looking to the next thing, tantalizing the market with word that his company plans a domestic IPO for its financial services division. Never mind that the division, whose crown jewel is e-payments provider Alipay, isn’t part of the New York-listed Alibaba.
Other reports touted potential new tie-ups between Alibaba and eBay’s (Nasdaq: EBAY) PayPal electronic payments arm. China’s other hyperactive tech firm, smartphone sensation Xiaomi, wasn’t too happy about Alibaba’s hogging of the spotlight, and put out its own figures about record sales during the Double-Eleven holiday. In a slightly ironic twist, those sales were made on Alibaba’s e-commerce platforms, showing that even Xiaomi is a distant second to Alibaba both in terms of business size and ability to generate hype. For the record Xiaomi said its sales in the first 4 hours of Double-Eleven shopping day passed its sales for the entire day last year. (English article)
Let’s start our post-Double Eleven run down with the drop in Alibaba’s stock, which was one of the biggest declines since the company’s record-setting $25 billion IPO in September. The decline saw Alibaba’s stock end the day at $114.54, which means it’s still 68 percent ahead of its offering price. This kind of run-up in anticipation of a big event, followed by a pullback when the event actually occurs, is relatively typical for stocks. So in that sense the drop isn’t that surprising. I’ve said before the stock is due for a major correction, and perhaps this decline finally marks the beginning of that overdue downtrend.
Meantime, let’s move to the Alipay news, which really is news since Jack Ma hasn’t talked about his long-term plans for the service before. Alipay was initially part of the original Alibaba, but Ma later split it off into a separate company due to Chinese laws restricting foreign ownership of such financial services. Alipay since then has become part of Alibaba’s newer and fast-growing financial services arm, called Ant Financial Services.
Ma’s statement that triggered all the excitement came on an interview with CCTV, China’s main TV broadcaster. It was relatively simple and lacked any detail, with Ma simply quoted saying that the company’s financial services unit will “definitely go public” and is likely to do so on one of China’s domestic stock markets. (English article) He didn’t specify anything else, though I expect such a listing would be for the entire Ant Financial unit, and would get a very strong reception from Chinese stock buyers.
Last we’ll close out this Alibaba Double Eleven report with word that the company is talking with PayPal about tie-ups, as eBay prepares to spin off PayPal into a separate company. (English article) Again, there’s no real detail in the report, which is based on some comments from an interview with Alibaba CFO Joe Tsai. Such a tie-up would certainly make sense, since PayPal has a strong global presence that would help Alibaba’s recently stated emphasis on globalization of its successful Chinese e-commerce business.