By Telis Demos
Alibaba Group Holding Ltd.'s executives often tout their
102-year vision for the Chinese e-commerce company. But some
investors don't have to stick around past Wednesday.
That is when several big institutional investors who bought
stakes in Alibaba before its September initial public offering will
be free to sell about 340 million shares when some "lockup"
agreements expire.
Valued at roughly $29 billion, that is among the biggest chunks
of stock freed from lockup in one swoop after an IPO, according to
an analysis by The Wall Street Journal, and it will roughly double
the amount of Alibaba shares potentially available on the open
market.
Alibaba's IPO raised $25 billion, the highest on record. Some
early investors were able to sell at the time, but Wednesday's
lockup release is the first opportunity other pre-IPO investors
have to realize gains on their early bets. A group of Alibaba
employees, holding an additional 100 million shares, will be able
to sell in May.
Historically, IPO stocks have fallen ahead of the end of
lockups, as investors fear a flood of new shares. While down only
slightly in recent weeks, Alibaba shares have fallen about 30% from
the post-IPO peak of $120 the stock hit in November.
Investors don't expect Alibaba's shares to fall sharply after
the lockup expires."It's only a minor negative," Tony Chu,
portfolio manager for RS Investments, which bought Alibaba shares
in the IPO, said of the end to the lockup. Mr. Chu declined to
disclose whether or not his fund still holds Alibaba shares.
Still, some say Alibaba investors have a powerful incentive to
shed shares. Many eligible to sell this week bought in when the
company was worth a fraction of its roughly $210 billion market
value. Shares closed at $84.50 Tuesday, 24% above the $68 IPO
price.
"It's human psychology to want to lock in some of what you've
made on paper," said Brendan Ahern, chief investment officer at
KraneShares, which manages China-focused exchange-traded funds that
own Alibaba stock.
Alibaba shares also have weathered a series of setbacks in
recent months. In late January, Alibaba posted sales for the
quarter ended Dec. 31 that fell short of Wall Street expectations,
in part because the share of revenue generated via mobile devices
was lower than some analysts had predicted.
Alibaba has sparred with a Chinese regulator over a report,
later withdrawn, about counterfeit goods available on its platform.
It faces a legal challenge in Taiwan over its structure as a
Chinese firm operating through foreign holding companies.
Alibaba is confident about its prospects. Joseph Tsai, Alibaba's
executive vice chairman, said in January that its quarterly results
showed "a strong foundation for future sustained growth." The
firm's executives have said they aim to keep it going for at least
102 years, a period spanning three centuries from its 1999
founding.
Alibaba shares are down 19% this year, a period in which the
tech-heavy Nasdaq Composite Index has risen 4%. Alibaba's two main
Chinese rivals, online retailer JD.com Inc., which also went public
in New York last year, and social-networking and games company
Tencent Holdings Ltd., are both up by more than 19% this year.
"Right now it's death by a thousand cuts," said Christopher
Baggini, senior portfolio manager at Turner Investments, which owns
Alibaba shares, though it sold some of its holding late last year,
according to FactSet.
Jeff Papp, portfolio manager at Oberweis Asset Management, said
his fund sold a small portion of its Alibaba holding when the stock
was trading above $100. He still plans to buy more stock in the
company in the months ahead, citing investments in new businesses,
including Snapchat Inc., that can help it in mobile sales. But he
is being cautious at the moment.
"We knew expectations were too high above $100 a share, and that
at some point, you're going to have a lockup coming," he said. "But
I don't think anything from our initial thesis has changed."
Alibaba has company among other recent high-profile IPOs. Shares
of several technology and consumer companies that went public
recently soared early on, only to stumble so far this year.
Lending Club Corp., an online lender, and camera maker GoPro
Inc. jumped 56% and 31%, respectively, on their debuts, but both
have fallen more than 24% in 2015. Online storage provider Box Inc.
jumped 66% by the close of trading when the stock made its debut in
January but has fallen 26% since then.
"I don't think any of them have had bad quarters, but it was
hard to beat what were frothy expectations," said Vince Rivers, a
senior portfolio manager at JO Hambro Capital Management.
Alibaba's stock release, coming after the typical 180-day
waiting period, is large in terms of the value of stock but
relatively small compared with Alibaba's market value. Facebook
Inc., over the course of two releases, freed up more than double
the number of shares sold in the IPO after six months, while
Twitter Inc. freed up six times as many shares as it sold in its
IPO by the end of six months.
The releases don't include stock held by Alibaba founder and
Executive Chairman Jack Ma, Mr. Tsai, Yahoo Inc. or SoftBank Corp.,
which as a group held about 1.4 billion shares, or about 58% of the
shares post-IPO, according to Alibaba's IPO filing. Those won't be
released from lockups until a year after the IPO.
Around 130 million pre-IPO shares weren't locked up at all, part
of the terms of those investments. A further eight million were
available to be sold as of December. Most funds that weren't
subject to the lockup bought more stock in the IPO and weren't
sellers in early trading, said people familiar with the deal. Some
were likely selling shares when the stock was above $100, they
added.
Juro Osawa contributed to this article.
Write to Telis Demos at telis.demos@wsj.com
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