Alibaba: The Little Genie That Roared?

By newsdoug on October 3, 2011

This week will see a limited offering of commentaries during China’s National Day holiday, starting with the latest provocative words on and about Alibaba Group, including Jack Ma’s latest interest in global expansion and critical words about the controversial Alibaba chairman from another major web executive. Jack Ma mildly surprised the world over the weekend when he declared that his Alibaba: China's mouse that roared? company is “very interested” in Yahoo (Nasdaq: YHOO), the struggling global search player which also happens to own 40 percent of Alibaba. (English article) The context of his remarks strongly implied that Ma was interested not only in buying back Yahoo’s 40 percent Alibaba stake, but also in potentially buying Yahoo itself. If such an outcome came to pass, it would certainly look like a “Mouse that Roared” scenario, a reference to the 1959 movie that sees a tiny European nation declare war on the US, and then go on to win. In this case, I could easily see Ma joining a group of private equity or other investors that eventually goes on to buy out Yahoo, and then Ma being named as Yahoo’s new CEO. Whether this is a good idea is a different matter. Ma has little or no experience running a major global company like Yahoo, and his time might be better spent staying at home to tend to his only listed company, China’s biggest B2B marketplace Alibaba.com (HKEx: 1688), which is also struggling. There’s also no reason to believe that Ma can succeed where a group of seasoned big-name Western executives before him have failed in the campaign to revive Yahoo. But that said, perhaps Ma’s outside perspective could be just the medicine to turn Yahoo around. If he ends up taking over, I would still peg his chances of success at just 20 percent, but not rule out success completely. In the second development, Joe Chen, CEO of Renren (NYSE: RENN), often called the Facebook of China, has lashed out at Ma and Alibaba for greatly contributing to the current confidence crisis in US-listed China stocks through his controversial spin-off of Alibaba’s e-payments unit, Alipay, earlier this year. (English article) I won’t go into all the background here (previous post), but Chen may have a point to some extent, as the high-profile misstep captured global headlines for several months and spotlighted the questionable business tactics used by many Chinese firms. Still, it might be a slight exaggeration to blame Ma for such a systemic problem, and as I said last week, the sell-off that has seen many US-listed China companies share prices tank in the last few months now looks more like a long-overdue correction in their overinflated share prices. (previous post)

Bottom line: A successful bid by Alibaba’s Jack Ma to take over and run Yahoo would likely end in failure, with only a 20 percent chance of success.

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