INTERNET: Alibaba Stock Sags Under Weight Of Good, Bad News
Bottom line: Alibaba’s shares will continue to sag through the rest of the year on any news about the company, whether good or bad, as investors exit the stock to lock in big gains.
My earlier theory that shares of e-commerce giant Alibaba (NYSE: BABA) will continue to slump on any news, good or bad, is playing out as the shares re-approach a post-IPO low on a mixed series of headlines about the company. At this point the stock is simply on a downward track, as investors of all ilk who made big profits from the company’s meteoric rise sell their shares to lock in some gains. The pressure looks set to continue for the rest of the year, following the end of a post-IPO lock-up period last month that will allow Alibaba’s earliest investors to join the selling frenzy. (previous post)
Of the 3 latest news bits, one is a bit worrisome, one is slightly positive and the last looks good on the surface but really won’t have much impact on the company. The worrisome item has media reporting that Alibaba’s film unit has slipped massively into the red, hinting that perhaps Alibaba didn’t do its homework before it purchased ChinaVision Media (HKEx: 1060) a year ago, which it later renamed Alibaba Pictures. The second and third items involve new tie-ups linked to the company, one with home appliance giant Midea (Shenzhen: 000333) and the other with smartphone sensation Xiaomi.
Let’s start with a quick look at Alibaba’s embattled stock, which fell by a modest 0.6 percent in the last trading session to close at $81.82. That decline has brought Alibaba shares to within a hair of their post-IPO low of $81.58 reached back in early March. The stock sold for $68 at the time of its record IPO last September, but leaped on the debut and had never traded below the $85 mark before March.
Alibaba had previously indicated there might be some problems with Alibaba Pictures, which was just one of its many purchases as it embarked on a buying binge over the last 2 years. Alibaba bought ChinaVision for $800 million a year ago, and last August announced it had discovered irregularities at the company that hinted at aggressive and possibly even illegal accounting practices before the acquisition.
Now Alibaba Pictures has just released its 2014 annual report, which includes a HK$415 million ($53 million) loss for the year, a sharp reversal from the HK$186 million profit in 2013. (results announcement) Revenue from continuing operations for the year also took a big hit, dropping by nearly two-thirds to HK$126 million. Some major adjustments were almost certainly happening behind the scenes to correct previous aggressive practices from the past.
At the end of the day this loss is still relatively small for a company of Alibaba’s size. But the fact that it got into this mess shows that Alibaba may not have done all of its due diligence in its rush to purchase ChinaVision, and it’s possible we could see similar issues crop up for some of its other acquisitions.
The second news item has Alibaba announcing a strategic tie-up with Midea, with a target of selling 11 billion yuan ($1.8 billion) of the latter’s products on Alibaba’s e-commerce platforms this year. (Chinese article) This deal should be mildly positive for Alibaba, but is probably mostly hype since the added sales are tiny compared to the overall volume of transactions that take place on Alibaba’s various e-commerce platforms.
Finally there’s the Xiaomi tie-up, which will see Alibaba-affiliated Ant Financial provide its electronic payments expertise to create a seamless buying experience for users of Xiaomi’s new line of wearable devices. (English article) This development looks mildly intriguing since it brings together 2 of China’s biggest innovators in their respective spaces.
But it will mean little or nothing for Alibaba shareholders, since Ant is completely separate from the publicly-listed Alibaba. At the end of the day, all of these news bits are relatively inconsequential to Alibaba’s overall business, and instead are just another excuse for investors who made big money from the company’s stock to continue selling their shares.
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