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Is Alibaba the Biggest Disappointment of the Class of 2014?

Alibaba (NYSE:BABA) went public in September 2014, selling $25 billion of BABA stock at $68 a share. It was the largest IPO in history.

Alibaba (BABA) logo displayed on phone screen in person's hands
Source: Jirapong Manustrong / Shutterstock.com

Yet, here we sit, more than seven years later, and Alibaba’s gained 129%, good for a compound annual growth rate of 12.6%. Considering the fanfare surrounding the company’s IPO at the time, it must seem like a major disappointment to anyone still holding all these years later. 

Of the big IPOs that year, Alibaba has to be considered one of, if not the biggest disappointment in 2014. 

Fanfare Surrounding BABA Stock    

Analysts were talking up Alibaba when it went public. Not much has changed on this front. At the end of August, Benzinga reported that of the eight analysts offering a target price for BABA stock in the previous three months, the average was $260.25, 67% higher than its current share price. Of those eight, only one was bearish about the stock.

“The pricing is very compelling. The company’s recent financials were very impressive with daily active buyers around 280 million, profit of $2 billion and 43 percent operating margin,” Brad Gastwirth, CEO of technology and healthcare investment firm ABR Investment Strategy, told CNBC at the time of its IPO. “I expect BABA to be a core holding for many large -cap growth portfolios.”

And it has been. 

Today, according to ETF.com, 73 ETFs hold shares in Alibaba. Of those, 15 allocate at least 5% of their portfolios to BABA stock. So, there’s no question the pros haven’t given up on it. 

The Motley Fool recently reported that Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) vice-chairman Charlie Munger doubled down on The Daily Journal’s (NASDAQ:DJCO) holdings in BABA. Munger, in addition to his work with Warren Buffett, is chairman of The Daily Journal. 

While there are several reasons to be concerned about what’s happened to Alibaba in 2021, there’s no question some very powerful people believe it’s going to be all right. 

Who Else Went Public in 2014?

Alibaba remains the second-largest IPO of all time, behind only Saudi Aramco. It was also the largest IPO of 2014. To compare the performance of Alibaba to its 2014 classmates, I’ll take four other large IPOs from that year.

Company IPO price Current price (Oct. 7) Cumulative return (%)
Alibaba $68 $156 129.4%
King Digital Entertainment $22.50 $18 -20%
GoPro (NASDAQ:GPRO) $24 $8.91 -62.9%
Virgin America $23 $57 147.8%
OnDeck Capital $20 $1.89 -90.6%

The names included on this list are the third-largest through the sixth-largest in 2014.

The second-largest of 2014 is Lending Club (NYSE:LC). Although I didn’t include it on the list, the peer-to-peer lending business was valued at $8.5 billion when it went public in December 2014. Today, it’s worth $2.9 billion, down 65.9%. 

The other four had mixed results, with only Richard Branson’s Virgin America delivering positive returns for investors. The Virgin Group owned 25% of Virgin America when it was acquired by Alaska Air Group (NYSE:ALK). The airline’s 147.8% return was achieved in 25 months, a far superior result to Alibaba.

It goes to show you that bigger isn’t always better. 

The Bottom Line

In early September, I had a change of heart when it came to Alibaba stock. A month earlier, I reasoned that a $171 share price was growth at a reasonable price. 

“The latest accusations against the company’s corporate culture, combined with the ongoing regulatory crackdown by the Chinese government, have me whistling a different tune,” I wrote on Sept. 7. “If you can ignore what’s clearly a problem, Alibaba’s business is still very healthy.”

I, however, concluded that until Alibaba cleaned up its act, I couldn’t support its stock. And while I don’t think it’s the biggest disappointment of 2014, I believe it has a lot of work ahead if it wants to get back to $320, where it traded in October 2020.

Charlie Munger or not, Alibaba’s not having a good year, some of the problems of its own doing. It’s cheap for a reason.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. 

Article printed from InvestorPlace Media, https://investorplace.com/2021/10/is-baba-stock-the-biggest-disappointment-of-the-class-of-2014/.

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