- Alibaba shares have fallen for two days since the lockup expiry.
- Alibaba shares are now down about 34% from its closing on the first day of trading.
- This wasn't the first lockup expiry for Alibaba shares, but it was the largest.
- All eyes will now be on Yahoo, which holds a 15% stake in Alibaba and hasn't pledged to keep its holding.
Alibaba Shares Move Lower Following Lockup Expiry
Alibaba (NYSE:BABA) shares have tanked for two days on the trot as a huge number of shares became eligible for sale, following the final and biggest lockup expiry on 21 September 2015. Technically the lockup expired on the 20th of September or 366 days from the record breaking Alibaba IPO. However, 20th September being a Sunday, the expiry became effective the following day. Alibaba shares have declined by nearly 6% in the two day period, falling 2.8% on 21 Sep and 3.1% on 22 Sep 2015.
For those unfamiliar, when a company goes public or lists itself of a stock exchange, shares are issued to various shareholders. To protect such a company's share value in its early days as a listed entity, often, agreements are made, typically with large shareholders to restrict a huge sell-off. Under such agreements, certain sets of investors, often including employees who hold the company's shares, are restricted from selling their holdings before the expiry of a 'lockup period'. In Alibaba's case, the lockup expiry was staggered and spread out over a year from the company's IPO in September last year.
As we mentioned earlier, this wasn't the first lockup expiry for Alibaba shares, however, it was the biggest. The first lockup expiry came about three months or 91 days following the IPO, on Dec 18 2014, when 8.1 million shares or 0.3% of the Alibaba shares at the time became eligible for sale. This was a relatively small number of shares in the context of Alibaba's total share count. A much larger number of shares became eligible for sale on 18 March 2015, when 429 million shares or 17% of the outstanding shares became eligible for sale.
The largest addition of shares eligible for sale came on 21 September, with about 1.6 billion shares becoming eligible for sale in the markets. That's about 63% of Alibaba's outstanding shares. The magnitude of this lockup expiry is huge and possibly explains the decline in Alibaba shares since.
Alibaba Since The IPO
Shares of the company were priced at $68 a share going into the $25 billion Alibaba IPO, the biggest tech IPO ever. After a strong performance in trading on day one, Alibaba's stock price rose to nearly $94 a share. Subsequent gains saw the stock continue its rise to nearly about $120 a share, before falling consistently to reach its current stock price of $61.9. The fall could possibly be attributed, at least in part, to the fact that investors have seen a fall in profit margins since the IPO, both in Alibaba's Q2 earnings and Q3 earnings for FY 2015 in spite of a decent performance in terms of revenue growth.
To make things worse, Alibaba's revenue growth also slowed in Q1 2016, even as the company's earnings release was being seen as one that would set the tone for the markets in the face of slowing growth for the Chinese economy, the Yuan devaluation and crashing oil prices.
Alibaba's market cap now stands at $154 billion, down to nearly half from its peak of $296 billion in November last year, and the shares have, not for the first time, slipped below it's IPO price of $68 a share.
Yahoo The Next Key Trigger For Alibaba Shares?
For now, all eyes will be on Yahoo (NASDAQ:YHOO), which holds a 15% stake in the Chinese e-commerce giant. As things stand, Yahoo hasn't pledged to keep its holding, and the company mulls spinning off its $25 billion stake. The plan for a spin-off was largely aimed at securing a tax efficient exit for Yahoo and optimizing value for Yahoo's shareholders. However, with the IRS denying a preliminary green light, there are uncertainties regarding tax treatment, and Yahoo's next move is still awaited.