Alibaba Scrambles to Prove High Valuation 阿里巴巴高估值或将作茧自缚

By newsdoug on December 9, 2011

Alibaba tries to pump up valuation E-commerce leader Alibaba, scrambling to find financing to buy back a 40 percent stake in itself held by Yahoo (Nasdaq: YHOO), is in a sudden scramble to tell the world why it’s worth $32 billion — a number it helped to float into the market back in September and one which, in my view, seems ridiculously high. In separate news bits from the last day or so, media are reporting the company’s Etao e-commerce search engine has launched a historical pricing search feature (English article), while its popular Taobao consumer-oriented sites have launched social networking functions. (English article) First Etao, which Alibaba hopes to build up as an e-commerce search specialist to one day take on industry titan Baidu (Nasdaq: BIDU). This historical price search function seems like a good idea, as it would make it easier for cost-conscious consumers to track previous prices for items they want to buy. The only problem is that historical prices could soon be the only thing that Etao can show, as several major online retailers, including 360Buy and Dangdang (NYSE: DANG), have blocked their items from being indexed in Etao search results. (previous post) Meantime, the social networking functions being built into Taobao seem like a direct attempt to take on existing SNS sites like Renren (NYSE: RENN) and Sina’s (Nasdaq: SINA) Weibo. While this strategy of building on its industry-leading C2C and B2C platforms to build up SNS sounds interesting, the two areas are relatively unrelated and few if any Chinese web firms have successfully executed similar strategies despite many efforts to leverage popular existing services to build up a new, unrelated ones. This flurry of initiatives seems designed, at least in part, to show the world why Alibaba thinks it may be worth $32 billion. Its only listed unit, Alibaba.com (HKEx: 1688) has a market cap of about $5 billion. That means that its other big assets, which mostly consist of a very successful Taobao Mall and more modestly successful Etao and its Alipay e-payment service, would have to be worth $27 billion collectively, which seems unlikely. Ironically, Alibaba’s high estimation of its own value could ultimately come back to hurt it, as Yahoo apparently seems to want to sell its 40 percent of Alibaba based on that overinflated value. The true amount will come out when a sale finally occurs, but I suspect the final valuation will be closer to $20 billion.

Bottom line: Alibaba is trying to convince the market it is worth $32 billion, but a sale of 40 percent of the company held by Yahoo will probably show a much lower valuation.

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