Alibaba Stock Tumbles
Alibaba shares have fallen to below their IPO price. It took a few months, but, as we suggested, it was inevitable. This IPO was the largest of its kind, and it was promoted heavily by the media. At the very height of the hype - when everyone was asking how Jack Ma did it - we asked whether the company was really worth US$7.8bn. Never mind the run up that followed the stock issue; the price put on the initial offering was itself too rich.
The problem has always been with the company’s core business - Alibaba.com. As someone involved in trade and manufacturing, I didn’t get it anyway. The website is nothing more than a directory. The company collects a simple fee from manufacturers who wish to list their company’s name and details. It’s not like eBay where the website gets a small slice of every transaction. The unit’s revenue model depends on having lots of factories willing to list for a fee.
Many recent reports have claimed that factories in China are going out of business. I believe that these reports are exaggerated, but think about it for a moment. If there will be fewer factories, what would that do to revenue at Alibaba.com? The stock has fallen in part because of failed earnings expectations, but investors maybe are putting it all together. Alibaba.com’s star could not be rising if the number of factories in China is falling.