Reuters/New York
Alibaba Group’s surprise revenue miss sent shares plunging on Thursday, but some investors say their enthusiasm for the Chinese e-commerce giant has not cooled given its long-term potential.
“I don’t think it’s even a stumbling block,” said Mark Yusko, head of the $4bn Morgan Creek Capital Management. Alibaba shares fell 8.8% on Thursday to close at $89.81, sending the stock below its September 19 first-day opening price of $92.70, after reporting lower-than-expected revenues for the third quarter.
The company’s record $25bn initial public offering was met with great fanfare, attracting big purchases from hedge funds managers eager for exposure to a company frequently referred to as the ‘Amazon of China.’ Shares soared, hitting a high of $120 in November, but the stock has slumped since, losing 25% of its value.
Despite the revenue miss and a migration of customers to mobile devices, where margins are typically narrower, investors said the stock remains attractive as a long-term play on China’s burgeoning consumer market.
“We’re in this for the long term. We think this is going to be a dominant franchise,” said Yusko.
Yusko started buying shares of Alibaba through private purchases well before the company’s offering last September, and has added to that position over time.
Hedge funds owned about 4% of Alibaba’s equity - or nearly 100mn shares - as of September 30, with 27 different funds counting it among their top 10 holdings, according to Goldman Sachs data analysing hedge fund filings. But the stock’s strong debut last year - as well as gains in the four months since - may have set expectations too high, said Vince Rivers, senior portfolio manager at JO Hambro Capital Management for the small/mid-cap US equity strategy. “It’s not cheap,” he said. “At a relatively high valuation, you’re going to get this kind of reaction.”
Alibaba’s forward price-to-earnings ratio fell to 29.7 on Thursday from 32.6 with the stock’s decline, though that valuation makes it still more expensive than auctions site eBay Inc or Chinese rival Baidu Inc.
Yusko and Rivers both compared the company to Facebook , another internet giant that similarly struggled to turn its large customer base into financial gains, particularly as many people migrated from desktops and laptops to their mobile phones. Facebook shares struggled for over a year after their 2012 IPO. It now trades at more than double its IPO price of $38 a share. Headed into earnings, options trading in Alibaba was largely dominated by bullish call bets, but bearish put activity was stronger on Thursday. Bets on the shares dropping to $85 by March 20 were among the busiest of the company’s options on Thursday, according to Thomson Reuters data. Alibaba’s mobile monthly active users nearly doubled from the same quarter the previous year to 265mn. Sales through mobile devices, which typically have lower margins, accounted for a bigger slice of total sales than in the previous quarter.
“We have to work through that growing pains period of that transition” to mobile, Rivers said.
Chinese online retail giant Alibaba founder Jack Ma smiles as he waits for the trading to open on the floor at the New York Stock Exchange. Alibaba’s
