The Wall Street Journal reports, the giddy anticipation around Alibaba the Chinese e-commerce giant's planned public offering has driven big rallies for major shareholders, Yahoo and Japan's SoftBank, which own 24% and 37% of Alibaba respectively.
But the mood shifted Tuesday after Yahoo released figures on Alibaba's third-quarter performance, which showed revenue growth slowing. Yahoo shares fell more than 3% in after-hours trading in the U.S., while SoftBank declined 1.3%, despite a 2.7% rally for the Nikkei index.
In fact, Alibaba's results weren't so bad. Revenue growth slowed to 51% from a year earlier, compared with 61% the previous quarter. But anyone expecting the top line to keep growing at such a rapid pace was bound to be disappointed. And Alibaba's fourth-quarter figures have a chance to turn out better, given the blowout results for its "Single's Day" holiday on Nov. 11.
The negative market reaction shows the degree to which tech valuations have been inflated globally. In October, Bernstein Research put Alibaba's value at $190 billion, or 32 times their forecast of $6 billion in 2015 net profit. Over the last four quarters, Alibaba earned $2.8 billion. Whether forecasts like that are still in reach is hard to know. As Bernstein admits, the skeletal figures released by Yahoo don't paint a full picture.
Meanwhile, a possible Alibaba listing in Hong Kong or New York just got more complicated. Last week a Securities and Exchange Commission judge ruled that Chinese units of the Big Four accounting firms should be suspended for six months from auditing U.S.-listed companies operating in China for refusing to hand over audit papers. The auditors say they are willing to deliver the papers, but Chinese law won't let them. The ruling is subject to appeal and won't go into effect immediately.
Alibaba is audited by the Hong Kong unit of PricewaterhouseCoopers, not the Chinese affiliate. But it's unclear if this will be enough to assuage SEC concerns for a New York IPO. The ruling details how rival KPMG's Hong Kong unit signed off on audits where the Chinese affiliate did the bulk of the work, and subsequently refused to hand over audit papers to U.S. investigators.
The end result is that SoftBank and Yahoo shareholders will have to wait awhile yet for their Alibaba payday. Meanwhile, all parties would benefit from tempering expectations for a blowout valuation.
