Doubts on Alibaba.com?

After a Heady Debut, Shares Fall Back 18%; Questions of Value
By LORRAINE LUK – The Wall Street Journal – Nov 08, 2007

HONG KONG — Many investors took the money and ran, driving shares of Alibaba.com Ltd. down 17% a day after their debut, when they nearly tripled from their initial-public-offering price.

Analysts said the flagship business-to-business unit of Alibaba Group is likely to fall further on continued profit-taking for a while, as the stock is still overvalued.

• First-day pop: Shares of Alibaba.com, the business-to-business unit of its eponymously named parent, nearly tripled in their debut.
• Second-day slump: The stock fell 18% as investors booked profits amid valuation concerns.
• What’s next: More profit-taking, according to analysts.
• Quotable: ‘The valuation is still too expensive given its fundamentals, and it has priced in all the good news,’ said Peter Lai, a director at DBS Vickers Securities.

Shares of Alibaba.com, which connects small manufacturers in China and elsewhere with potential customers, fell to 32.60 Hong Kong dollars (US$4.20) yesterday, after touching a low of HK$31.90 intraday. By contrast, the benchmark Hang Seng Index rose 0.9%, or 270.8 points, to 29708.93. Alibaba.com was the third most actively traded stock on the Hong Kong exchange, with shares valued at more than HK$6.3 billion changing hands.

“At above HK$30, Alibaba.com is trading at more than 200 times [forecast 2007 earnings]. The valuation is still too expensive given its fundamentals, and it has priced in all the good news,” said Peter Lai, a director at DBS Vickers Securities Ltd.

Yahoo Inc. of Sunnyvale, California, owns about 39% of Alibaba Group.

On its debut Tuesday, Alibaba.com closed at HK$39.50, up from its issue price of HK$13.50. The shares ended Tuesday trading at 320 times the company’s forecast 2007 net profit of 622 million yuan (US$83.4 million). That valuation was much higher than the price-to-earnings ratio of 52 at Nasdaq-listed rival business-to-business search engine Global Sources Ltd. and the 177 P/E ratio of Chinese-language Internet-search provider Baidu.com Inc.

Mr. Lai said he expects bargain hunters to sell the “overshot” Alibaba.com and use the funds to buy market laggards.

Alibaba.com raised US$1.5 billion in its Hong Kong IPO by selling 858.9 million shares. The company said Tuesday that it exercised an overallotment option, selling an additional 113.7 million shares at the IPO price of HK$13.50 to raise HK$1.53 billion more. The exercise of the option increased the funds raised from the IPO to US$1.7 billion.

Alibaba.com was founded by its chairman, Jack Ma, in June 1999. It leads the B2B market in China, with a 69% share, according to second-quarter trade-value numbers from technology-consulting firm Analysys International. Web-site tracker Alexa.com ranks it as the most visited import/export site.

Parent Alibaba Group’s other units include Taobao.com, the leading online-auction site in China, online-payment system Alipay, and Yahoo China, and it is one of the few Chinese Internet companies to establish a global profile.

Write to Lorraine Luk at lorraine.luk@dowjones.com