Did Alibaba trick an­a­lysts and in­vestors over growth and

Financial Mirror (Cyprus) - - FRONT PAGE - By Jon C. Ogg

Alibaba Group Hold­ings Ltd. (NYSE: BABA) had a mas­sive ini­tial public of­fer­ing (IPO). Its stock soared, and Wall Street an­a­lysts set very high price tar­gets in their cov­er­age of the Chi­nese on­line seller of ev­ery­thing un­der the sun. Just like the rest of the world, an­a­lysts of­ten see things in a man­ner that does not work out.

The ques­tion that 24/7 Wall St. has is whether Wall Street was duped into think­ing that Alibaba would have higher growth rates than re­al­ity. Af­ter all, Jack Ma and his team knew much of the growth met­rics through­out much of the fourth quar­ter. Still, Ma may have cov­ered him­self even be­fore the IPO priced.

Af­ter Mark Cuban warned that Alibaba should not have been al­lowed to come public in the United States, we can­not help but won­der if this is go­ing to lead to a feel­ing by an­a­lysts that they were duped by the com­pany into cer­tain growth as­sump­tions. That be­ing said, Ma did warn up front that share­hold­ers are not the first con­cern. Ma was quoted even be­fore the IPO as say­ing, “Cus­tomers first, em­ploy­ees sec­ond, and share­hold­ers third … I can see that in­vestors who hear this for the first time may find it a bit hard to un­der­stand.”

Alibaba’s IPO price was at $68 on Septem­ber 19, and its shares closed at $93.89 af­ter the first trad­ing day. The range on that first day was $89.95 to $99.70. Af­ter that, the stock tread wa­ter be­fore ris­ing to above $100 on Novem­ber 3. It then hit a high of just over $120 by Novem­ber 13. Now the shares trade around $90.

Op­pen­heimer main­tained its Out­per­form rat­ing, but the firm cut its price tar­get to $112 from $133. It said: “Our pos­i­tive the­sis on BABA con­tin­ues to build on its ro­bust GMV growth and fu­ture mon­eti­sa­tion up­side po­ten­tial. We think its lower-than-ex­pected blended take rate is at­trib­ut­able to man­age­ment’s in­ten­tion to main­tain mar­ket share among in­tense com­pe­ti­tion, via re­duc­ing mer­chants’ costs and im­prov­ing user ex­pe­ri­ences. Also, on Jan­uary 30, the CEO met with the top of­fi­cial of SAIC and agreed to crack down on coun­ter­feit goods to­gether.”

Wells Fargo main­tained its Out­per­form rat­ing, but the val­u­a­tion range was cut to $110 to $113 from a prior $123-126 range. Its lower tar­get was based on lower e-com­merce mar­ket mul­ti­ples. The firm said: “Alibaba re­ported solid bot­tom-line re­sults, though rev­enue missed our es­ti­mates and con­sen­sus, send­ing the stock down 8.8%. Core de­mand met­rics were strong, in­clud­ing gross mar­ket value growth and ac­tive user growth.”

Credit Suisse main­tained its Out­per­form, but low­ered its tar­get to $113 from $118. “We re­vise down ex­pected 2016 earn­ings by 0.6%. We turn more con­ser­va­tive in near-term tak­er­ate as­sump­tions, but main­tain our view that mon­eti­sa­tion rate con­tinue to in­crease with bet­ter buyer ex­pe­ri­ence and mo­bile ad roll-out. We see weak­ness as good buy­ing op­por­tu­nity. Our dis­counted cash flow-based val­u­a­tion of $113 im­plies 43.8x CY15E, 33.5x CY16E, and 26.8x CY17E di­luted ad­justed earn­ings per share.”

Bank of Amer­ica Mer­rill Lynch main­tained a Buy, but cut the price ob­jec­tive to $116 from $132. “As man­age­ment em­pha­sises its fo­cus on com­pany’s long-term prospect af­ter the IPO, the mar­gins and mon­eti­sa­tion rate con­tinue to be in tran­si­tion.”

Other an­a­lyst calls were as fol­lows: Brean Cap­i­tal has a Buy, but low­ered the tar­get to $110 from $115; CRT Cap­i­tal had a Buy, but its tar­get was cut to $110 from $122; Ever­core ISI cut its tar­get to $115 from $130; Gold­man Sachs main­tained Neu­tral, low­er­ing its tar­get to $98 from $104; RBC Cap­i­tal Mar­kets main­tained Out­per­form, but cut the tar­get to $113 from $130; and, SunTrust Robin­son Humphrey main­tained a Buy, and the tar­get was cut to $110 from $120.

If you won­der even fur­ther, what does it tell you when class ac­tion suits are filed this soon af­ter an IPO?

The firm Rob­bins Geller Rud­man & Dowd has filed a class ac­tion suit against Alibaba, and that was af­ter a Jan­uary 29 re­lease by the Pomer­antz Law Firm in which it was said to be in­ves­ti­gat­ing claims on be­half of Alibaba in­vestors.

Ma might be able to say he warned up front that in­vestors are not the high­est pri­or­ity of the com­pany. And then there was our warn­ing ahead of the IPO that the risks and dis­clo­sures sec­tion of the prospec­tus was an un­heard of 40 pages long.

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