The Real Alibaba

Alibaba has dropped 46% from its high of $120 on Nov. 13th.

This month marks the one-year anniversary of the IPO for Alibaba (BABA). It's been "a wild ride" (a term used when a stock's had at least one bust after a boom). [bold added]

After the largest-ever initial public offering of stock, a year ago this week, shares of the Chinese Internet giant surged 75% in their first two months—only to begin a long spiral downward. They fell all the way to the initial price of $68 and then some, recently trading at about $64. The descent probably isn’t over. Alibaba’s shares could fall much further as China’s economy struggles, competition in e-commerce increases, and the company’s culture and governance draw scrutiny.

Barron's colorfully calls Alibaba another "widely hyped" Chinese IPO that "flame out like supernovas as growth rates and profit margins suddenly decline."

BABA's own performance numbers are questionable:

Alibaba claims to have 367 million users—about the same as one government agency’s estimate of China’s entire online-shopping population. Or this: Alibaba claims its average shopper spends 26% more on its sites each year than the average U.S. online shopper spends on all sites. Does that make any sense, given American consumers’ far greater affluence and ability to avail themselves of a vastly more developed e-commerce ecosystem?

The founder's motives are also suspect:

Just consider how the company is structured. Shareholders of Alibaba Group don’t actually own the businesses that make up the company; [Jack] Ma and his close associate Simon Xie do. Under a legal agreement with Ma and Xie, the fruits of the businesses, including cash flow and profits, are transferred to the holding company. But the Ma team gets to select a majority of the holding company’s board of directors.

When asked why he named the company after the fictional character, Jack Ma said,

"Alibaba is a kind, smart business person, and he helped the village," he said. "Alibaba opens sesame for small- to medium-sized companies."

The fairy-tale Ali Baba wasn't exactly the wholly virtuous protagonist that Jack Ma made him out to be. In A Thousand and One Arabian Nights Ali Baba stole the treasure (by saying the magic words open sesame) from 40 thieves who hid their ill-gotten gains in a secret cavern. The thieves sought revenge against Ali Baba but were slaughtered by a maidservant who poured boiling oil into the jars where they hid.

At the end of the story Ali Baba becomes incredibly wealthy, but he did have to leave a lot of bodies behind.

(Disclosure: your humble observer has a small investment in Yahoo, which owns 384 million BABA shares, currently worth about $25 billion.)