Lockup Expiration Knocks Alibaba Group Holding Ltd Stock Down

AlibabaBy Charliepug (Own work) [CC BY-SA 4.0], via Wikimedia Commons

Sharers of recently IPOed firms often experience weakness when the “lockup expiration” period expires so insiders can sell shares, and Alibaba is no exception to the rule. The share price of the Chinese online retailer and one-time Wall Street darling has been drifting down over the last couple of months in anticipation of Wednesday’s lockup expiration. In fact, the stock is down more than 25% since the first of the year.

That said, maybe most of the selling has already happened, as Alibaba shares are down less than 1% in Wednesday trading.

A number of analysts have also pointed out that a much larger lock-up of over a billion shares held by insiders expires in September. That has raised investor concerns about further drops in the stock as insiders sell.

More on Alibaba lockup expiration

Of note, the lock-up period expiring today means insiders owning a total of 437 million Alibaba shares are legally allowed to sell. That represents close to 18% of the total outstanding shares, and well exceeds the 368 million shares sold in the IPO. However, around 100 million shares held by employees cannot be sold until the company reports earnings results in May.

Statement from analyst

“Lock up expiration dates are fraught with selling,” commented Kim Forrest, senior equity research analyst with the Fort Pitt Capital Group. “Who knows what people actually paid or what their cost basis is. But a lot of the time, people don’t care, they just want some cash, some liquidity, and that is what drives prices lower regardless of the fundamentals of the company.”

Other Alibaba developments

As reported by ValueWalk earlier on Wednesday, Alibaba has abandoned plans to invest in Indian online marketplace Snapdeal due to the high valuation. Snapdeal was looking to raise $1 billion in its latest funding round, and Alibaba was ready to invest $500-$700 million. However, sources say the two sides could not agree on a valuation.

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