Alibaba shares rose 2.61% to $84 on Monday, a day before the massive lock-up expiration. On Tuesday, March 17, the post-IPO lock-up will expire for 437 million shares of the e-commerce giant. That’s even higher than Alibaba’s much-hyped IPO, when 368 million shares hit the market. Many of the Alibaba executives and early investors could not sell shares in the IPO due to lock-up arrangements.
Not all of 437 million Alibaba shares will be eligible for sale
Though the six-month lock-up period applies to 437 million shares, only 337 million shares will actually become eligible for sale to the public. That’s because about 100 million of those shares belong to Alibaba employees, who are not allowed to sell their holdings until May, when the Hangzhou-based company reports results for the first quarter.
Dan Loeb's Third Point returned 11% in its flagship Offshore Fund and 13.2% in its Ultra Fund for the first quarter. For April, the Offshore Fund was up 1.7%, while the Ultra Fund gained 2.3%. The S&P 500 was up 6.2% for the first quarter, while the MSCI World Index gained 5%. Q1 2021 hedge Read More
What’s more, the online retailer’s biggest shareholders and top executives, including SoftBank, Yahoo, Jack Ma and Vice Chairman Joe Tsai, won’t be selling their shares. They are subject to a one-year lock-up period after the IPO. According to Alibaba’s IPO prospectus, these stakeholders collectively own 58% of the company’s total outstanding shares. They will be eligible to sell on the public market when a lock-up on 1.58 billion shares expires in September this year.
Lock-up expiration to weigh on Alibaba stock
Analysts believe that the lock-up expiration will weigh on the company’s stock. Though Alibaba shares are still trading above the IPO price of $68, the stock is down from the November high of $120 to $84 on Monday. It may get worse as more shares become eligible for sale. Last week, Barclays analyst Alicia Yap maintained an Overweight rating on the stock, but slashed the 12-month price target from $107 to $100.
Alibaba stock is already under pressure due to so many challenges lying ahead. In January, Chinese regulators have accused the company of turning a blind eye to the sale of counterfeit goods on its marketplaces. Just a few days later, the Chinese company missed the Wall Street earnings estimates for the December quarter. The Jack Ma-led company has intensified efforts to crack down on fake goods. So, Alibaba will have to invest heavily in areas that may not translate into short-term revenue growth. It may hurt the stock in the near-term.