All You Need to Know About Alibaba’s Lock-Up Expiration

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[h=1]All You Need to Know About Alibaba’s Lock-Up Expiration[/h]

• Article
• Comments

• [h=2]Alibaba[/h]
• [h=2]Asia[/h]
• [h=2]China[/h]
• [h=2]IPO[/h]
• [h=2]Lockup Expiration[/h]
• [h=2]technology[/h]

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• Juro Osawa
  
  
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Alibaba Group Executive Chairman Jack Ma Associated Press​

Since Chinese e-commerce giant Alibaba Group Holding went public in the U.S. last September in a record $25 billion initial public offering, its employees and some of its investors haven’t been able to sell shares due to “lock-up” arrangements designed to help protect the stock’s price in its early days. Now, one of the arrangements – the one that lasts 180 days from the IPO – is expiring on Wednesday.

• How many shares could flood the market?

Come Wednesday, 337 million Alibaba shares become eligible for sale to the public. The 180-day lock-up period applies to about 437 million shares. But of those shares, about 100 million won’t actually be available on Wednesday because of stock-trading restrictions for Alibaba employees who aren’t allowed to sell their shares until May, when the company reports its earnings for the January-March quarter. So that means about 337 million shares — about 14% of Alibaba’s total outstanding shares — will be eligible for sale on Wednesday. The holders could also choose to keep some or all of their stakes.

• Who can sell?

Alibaba’s biggest shareholders including its top executives won’t be allowed to sell their shares until September. There are different lock-up periods for different shareholders. According to Alibaba’s IPO prospectus, some of its largest shareholders, including Japanese Internet and mobile service company Softbank, U.S. Internet firm Yahoo, Alibaba Executive Chairman Jack Ma and Executive Vice Chairman Joe Tsai, are subject to a lock-up period of one year after the company’s listing last September. Those top shareholders together hold about 58% of Alibaba’s outstanding shares, according to the IPO prospectus.

• What kind of market impact can we expect?

The expiration of the 180-day lock-up period will likely weigh on Alibaba’s share price, analysts say. Because the lock-up expiration enables some investors to sell their Alibaba shares, the company’s stock may come under pressure in the near-term, analysts say. In a note to clients last week, Barclays analyst Alicia Yap maintained an Overweight rating on Alibaba’s stock, but lowered her 12-month price target to $100 from $107, citing the lock-up expiration as one of the factors. In the case of Facebook’s 2012 listing, the stock fell sharply after the first lock-up expiration three months after the IPO. Alibaba’s stock rose 2.6% Tuesday to US$84, still above its IPO price of $68 but well below its highest price of $120 recorded in November.
To be sure, shares don’t always fall when a lock-up period ends. Six months after Facebook’s 2012 IPO, one of its lock-up arrangements expired, but the stock jumped nearly 13%. At that time, market analysts said there was pent-up demand for Facebook shares and short sellers who had been counting on a selloff were forced to unwind their bearish bets, contributing to a bigger rally.

• Investors have other concerns beyond the lock-up expiration.

The end of the 180-day lockup period is negative for Alibaba shares, but “it’s only a minor negative,” said Tony Chu, portfolio manager for RS Investments, which bought Alibaba shares in the IPO last year. Chu said he has a negative outlook on the stock for the near-term, mainly because of concerns that Alibaba may have to keep increasing its investment to deal with the problem of counterfeits being sold on its Taobao marketplace. While such efforts are necessary, investments in areas that won’t translate to short-term business growth could be a negative for Alibaba’s share price, Chu said. Given those concerns, “the stock’s valuation isn’t particularly attractive,” he said.

All You Need to Know About Alibaba’s Lock-Up Expiration - Digits - WSJ

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