Alibaba Buy-Out: Slow Growth Ahead 阿里巴巴未来增速或放缓
Financial markets have given their verdict on the future growth prospects for e-commerce leader Alibaba, and frankly speaking the long-awaited assessment doesn’t look too exciting or promising. I said last week when word first emerged that Alibaba was near a deal to buy back 20 percent of its shares held by Yahoo (Nasdaq: YHOO) that the most interesting elements would be the valuation Alibaba got from the transaction, as well as the name list of investors. (previous post) For starters, the valuation that Alibaba got from the deal is a bit disappointing for a company whose value rocketed from just $2.5 billion when Yahoo first purchased its stake in 2005 to more than $30 billion last year on the explosion of China’s e-commerce market.
Media had reported last week that Alibaba would pay about $７.6 billion in the deal, which would have valued the company at around $38 billion if all that money was for the stake repurchase. But it turns out that $500 million of that was for fees to Yahoo unrelated to the stake repurchase. That means Alibaba paid just $7.1 billion for the 20 percent stake, valuing the company at about $35.5 billion. (company announcement)
To put that number in perspective, it’s actually a little less than the $36 billion that Alibaba was reportedly worth when a group including Russia’s Digital Sky Technology (DST) invested in the company a year ago. That means Alibaba’s value has remained stagnant or even gone down slightly over that time — a sobering reality for a company that was used to much headier growth in the past.
The list of investors in this newest stake buyback is also rather disappointing, again pointing to slow growth and tough times ahead for Alibaba. The main stake buyers in this latest investment appear to be mostly Chinese firms with strong ties to the government, including CIC International, CITIC Capital and CDB Capital. CIC is China’s sovereign wealth fund, while CITIC is also closely linked to the government and so is CDB, which is the private equity arm of policy lender China Development Bank.
A few foreign investors did also join the funding for the buyback. DST headed that list, which should surprise nobody since the Russian company has been particularly aggressive about investing in the Chinese Internet over the last 2 years. Others on the list of international investors included private equity firm Silver Lake Partners, and Singaporean sovereign wealth fund Temasek. With the possible exception of Silver Lake, this list looks quite boring and conservative. These kinds of massive institutions typically look for growth of around 10 percent in their investments and are even happy with less, meaning that no one is expecting huge returns over the next 2-3 years.
In all fairness, current market conditions are quite dismal, especially for China Internet firms, so perhaps Alibaba did well to raise this much money in such a tough climate. Furthermore, competition in China’s e-commerce sector is particular stiff at the moment, and there’s no indication that the situation will ease in the next year. At the end of the day, it looks like Alibaba will need to get set for a new period of slow growth, which certainly won’t help its story when it finally go to financial markets to make a highly anticipated IPO as early as 2014.
Bottom line: The latest valuation and new investor list from Alibaba’s buyback of 20 percent of its shares indicate the company is set for a period of slow growth for the next 1-2 years.
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