Alibaba investors face lock-up battered but largely unbowed

Wed Mar 18, 2015 5:02pm EDT
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By Jessica Toonkel

NEW YORK (Reuters) - As Alibaba (BABA.N: Quote) was preparing to sell shares to U.S. investors for the first time, Jerry Verseput tried to persuade his clients not to throw money at the giant China-based e-commerce company because he thinks IPOs are a gamble, especially those with a lot of hype.

"I said if you want to go play with the money, I will do it for you but understand this is for entertainment purposes and not an investment strategy," said Verseput, president of Veripax Financial Management in Folsom, California, who manages about $65 million. For the two clients that insisted on buying stock, Verseput made sure they only invested less than one percent of their assets in the IPO.

That was probably good advice. Six months after Alibaba’s IPO, the shares are down more than 29 percent from their November high. Alibaba opened on Sept. 19 at $92.70, ended its first day at $93.89 and reached its peak on November 13, when it hit $120.

Alibaba, which already commands 80 percent of the Chinese market and handles more ecommerce than Amazon (AMZN.O: Quote) and eBay (EBAY.O: Quote) combined, trades at a price-to-earnings ratio of about 30, compared with Seattle-based Amazon, which sports a three-digit P/E.

On Wednesday, a lock-up period expired allowing insiders owning a total of 437 million Alibaba shares to sell, although 100 million of those shares owned by employees remain restricted until May when the company will report quarterly earnings. A larger lock-up of more than a billion shares held by insiders, including Yahoo! Inc YHOO.O expires in September. Some investors are worrying about further drops in the stock as insiders sell.

At TD Ameritrade AMTD.N, which typically serves retail investors, more than half of those who bought shares of Alibaba at the IPO still own the stock, while 24 percent sold within a month of buying.

"It's been ugly," said Alan Haft, a Newport, California-based financial adviser who said he "shamefully went on CNBC touting the stock" before the IPO and talked about a dozen of his clients into buying it. He says he still sees a good long term picture for Alibaba, but not right away. "The stock is probably going to get worse so in the short term it's a regret."

While some anticipated a small drop in the stock price Wednesday as a result of the lockup, many analysts believe the end of the lockup has already been priced in.   Continued...

The logo of the Alibaba Group is seen inside the company's headquarters in Hangzhou, Zhejiang province November 11, 2014.  REUTERS/Aly Song