Alibaba (BABA) went public one year ago today in the largest initial public offering in history, but thing haven’t gone the way those early investors in BABA stock expected.
Indeed, a mostly disappointing year for Alibaba almost makes you wonder what all the fuss was about.
True, BABA stock got off to a great start. When China’s answer to Amazon (AMZN), eBay (EBAY) and PayPal (PYPL) priced its public debut, it raised $21.8 billion at $68 a share.
The record offering was impressive enough, but it paled in comparison to what Alibaba stock did next.
BABA jumped 38% on its first day of trading and hardly took a breather. In fewer than two months, Alibaba stock was going for more than 75% above its IPO.
But it has been all downhill ever since.
Indeed, BABA stock is celebrating its birthday at $65 a share. Not only is that $3 below the IPO price, it’s off about 30% from BABA’s closing price on its first day of trading. Not to rub it in, but Alibaba stock also happens to have dropped 45% from its 52-week high.
So what went wrong for the greatest IPO since Facebook (FB)?
Not quite everything, but a lot.
On the big stage, the Chinese economy slowed dramatically, and its stock market cratered. Meanwhile, on the regulatory front, the Chinese government is after BABA, alleging that the e-commerce giant is complicit in the sale of counterfeit goods.
In addition to those worries, BABA hasn’t done a good job of managing Wall Street’s expectations. It has missed analysts’ average revenue estimates in two of its four quarters as a publicly traded company.
Is Alibaba Stock Headed for a Crash?
And those are just a few of the more salient problems Alibaba stock has to contend with. There are legions more, according to Barron’s. The highly regarded magazine for investors thoroughly trashed BABA stock in a recent 3,000-word cover story.
In Barron’s view, Alibaba stock is facing a decline of up to 50%. Additionally, the magazine says that BABA lies in its financial reports.
Here’s a quote from the piece:
“Anne Stevenson-Yang, founder of Chinese research firm JCapital Research, has closely tracked the mainland e-commerce industry in general and Alibaba specifically. She finds the growth numbers puzzling. She observes that ‘Alibaba’s financial reports have broken free of verifiable reality and have reached an escape velocity that doesn’t comport with Chinese government figures of overall retail sales, consumer spending, or online commerce.'”
And it gets worse from there.
Bottom Line
If the Chinese economy and consumers weren’t hurting, you can bet Alibaba stock wouldn’t get nearly as much negative attention, but that’s how it goes. Even if Barron’s is off base, BABA is laboring under severe forces beyond its control at a time when competition is intensifying.
Alibaba stock may come back, but it’s far from having a happy birthday.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
