Alibaba (BABA) has had a wild ride since its IPO last year. Today, shares are up about 3% from the first day of trading, although that pales in comparison to the heights in November, where they hit about 75% higher than today.
Since November, prices have crashed down; their growth is still strong, but investment firms and hedge funds are having a hard time valuing the Chinese e-commerce giant. One of the major issues is how to value potential revenue growth; one of the most appealing parts to buying into fast-growing companies is also what makes them the most risky. Most of the value of the stock is rooted in how much investors expect the company to grow in subsequent years, which places a lot of value in speculation on what their market will be like 1, 3, or 5 years down the road.
Alibaba is feeling this cut now. Some of its biggest investors, large American hedge funds, are starting to dump their shares and look elsewhere, namely JD.com (ADR), which has the same market niche as Alibaba, but a very different business model, and much faster growth in the last year.
So what gives? Investors are looking for the highest return, and Alibaba is feeling the cut of changing market sentiment. JD is “Hot”, a small upstart that is gaining market share and attention quickly, while Alibaba, the darling of investors all over the world last year, is suddenly “Old News”, and needs to re-prove its worth to keep investment dollars coming in.
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