Two of China’s Internet behemoths are oddly trading in opposite directions. Baidu (BIDU: 349.66 -0.13%, vol: 6,284,710) has risen dramatically since its IPO. Baidu’s recent 52-week trading range was between $98.45 and $429.19, a positive difference of 336%. Alibaba (1688.hk) is listed on the Hang Seng Index, held its IPO on November 6th, 2007. Alibaba has dropped from $41.80 to $12, a negative difference of 71%. The stock is currently trading approximately 10% below it’s IPO price of $13.50.
If we look at Baidu’s stock price shortly after its IPO, we can infer that Alibaba’s stock may be due for additional drops as the market digests the first few quarters of earnings. Baidu fell from a closing price of $122.54 on August 5th, 2005, to its lowest close of $45.15 on February 7th, 2006. The stock dropped 63% before going on to gain nearly 895% since February 7th, 2006.
Alibaba faces a weaker international trade environment that is causing investor uneasiness over future earnings. Ultimately the stocks performance will be linked to the companies earnings. If Alibaba can grow at the same pace as Baidu or at the early days of eBay (EBAY: 30.67 -0.71%, vol: 11,464,450), investors should be in store for a large jump up in the price of the stock.
According to this Forbes article, the core group of investors in Alibaba’s IPO include, “AIG Global Investment, Taiwanese billionaire Terry Gou’s Hon Hai Precision, Peter Woo of Hong Kong’s Wharf (Holdings), the Kwok family of Hong Kong’s largest real estate developer Sun Hung Kai Properties, Malaysian Chinese media and hotel magnet Kuok Hock Nien, Cisco Systems (CSCO: 25.44 +2.09%, vol: 51,030,864) and China’s largest bank, Industrial and Commercial Bank of China.”
Investors should take note that the group above is locked-in to holding Alibaba stock at $13.50 for a period of 2-years since they received a pre-IPO allocation. In the mid-term, Alibaba may be setup to reflect Baidu’s positive performance. I wouldn’t rule out a future Alibaba ADR listing if the company continues its rapid growth and the stock receives favorable interest.