INTERNET: E-Commerce Giants Alibaba, JD Sag On Any News
Bottom line: Alibaba and JD.com shares will remain under pressure through the middle of the year as short-term investors sell the stock on any news, but could start to recover after that as new money flows into the companies.
E-commerce leaders Alibaba (NYSE: BABA) and JD.com (Nasdaq: JD) are both in the news today, the former for yet another major purchase in the entertainment space and the latter for its newly released quarterly results. Neither news bit excited the markets too much, as investors continued to sell a pair of stocks that are quite overinflated from a year of hype over the potential of China’s Internet.
For Alibaba, the news that it purchased an unspecified stake of film producer Enlight Media (Shenzhen: 300251) for 2.4 billion yuan ($383 million) was relatively small, even though the deal would be large for most other companies. Meantime, investors probably found it hard to get excited about JD’s latest report that showed its losses ballooned in the final quarter of last year, even as it posted relatively healthy revenue growth and seemed to be bringing costs under control.
Shareholder reaction to both of these news bits was moderately negative, reflecting the very real fact that investors are looking for just about any reason they can find to sell these overvalued stocks. Alibaba shares dipped 3.3 percent after announcement of its Enlight tie-up came out, while JD.com shed 2.2 percent. We can probably expect just about any news at all to have a similar effect on these stocks for the next 2 or 3 months.
Let’s begin with a closer look at Alibaba, whose swollen shares have been moving steadily downward and have now lost about a third of their value since peaking in early November. Some may blame a recent scandal involving government claims of rampant piracy on one of its main e-commerce sites for the decline. That may be partly true, though the bigger reason is that the shares had no business being that high to start with.
News of the company’s latest tie-up came from Enlight itself, which is publicly traded in Shenzhen and has gained a strong reputation based its low-budget blockbuster comedy “Lost in Thailand.” An Alibaba subsidiary bought the stake via a private placement, paying 24.22 yuan per share. Enlight shares were trading at about 30 yuan before the announcement, and quickly shot up by their 10 percent limit afterwards. Based on the size of the investment and Enlight’s market cap at the time of the placement, the stake it sold to Alibaba would total about 10 percent.
This particular deal looks relatively positive, as it will allow Enlight to maintain its independence while giving Alibaba a major new source of quality filmed entertainment for its future video products. The partnership should complement a string of other recent purchases by Alibaba in the entertainment area as it tries to build up that business.
Next let’s look at JD, whose bottom line probably spooked investors as its net loss quadrupled to $73.2 million in the last quarter of last year. (company announcement) While the change looked big, it’s worth pointing out that JD is quite a large company and the latest quarterly loss was still just 1.3 percent of its quarterly revenue. At the same time, JD showed a more encouraging trend of controlling its spending, with revenue and costs both rising at a similar rate of about 75 percent.
The JD sell-off left the company’s shares trading at around $27.50, which is still about 45 percent above their IPO price from last year. By comparison, Alibaba’s shares are now just 18 percent higher than their IPO level. Alibaba priced its IPO shares much more strongly than JD’s due to an irrational frenzy in demand, which is why its shares have suffered more lately than its smaller rival. Look for shares of both companies to remain under pressure for the next few months as more short-term investors pull out on just about any news, before their stocks could start to stabilize around the middle of the year.
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