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Alibaba IPO: Good News and Bad News Are Spelled Out in SEC Filing

NEW YORK (TheStreet) -- There's good news and bad news about the Alibaba IPO.

Let's start with the good news. Alibaba's initial paperwork allows potential investors to finally get a look at its financials. Its financial performance looks very strong. Unlike many other tech companies in recent IPOs, this company appears to have real revenue and real profits. It has positive cash flow, solid revenue growth, a solid net profit margin and nearly $1.5 billion in profits.

The bad news is that now you have to read the 2,000-plus page filing with the SEC if you're thinking about investing in Alibaba or directing clients to do so. Seriously.

I always encourage people to take a common-sense approach to reading companies' financial statements, and you should definitely do this with Alibaba's. Daunting as the task may be, you should read the whole filing, and don't ignore items that leave you with questions. After all, Alibaba fills 30 pages alone describing the company's risks, and it has more than 60 pages of notes to the financial statements. Many of those may be "routine" or similar to risks and notes other tech companies point out in their filings. But, accounting involves many judgment calls, and the notes to financial statements help explain what those are for Alibaba. Most companies actually divulge major issues in those sections as well.

You should also think twice about whether we are facing a bubble for technology stocks in general and for tech IPOs especially. The IPO market showed more activity in the first three months of this year than in any first quarter since 2000. Alibaba's planned IPO means the U.S. is on track to generate another record year for public offerings.

Also, roughly half of this year's IPOs are trading below their IPO price. It could be that investors are finally starting to look at the fundamentals of these businesses compared to the valuations, and, if so, that's a good thing. We've had too many IPOs where analysts seem to come up with their own valuation methods (that stray far from fundamental financial principles used in the past) in order to justify sky-high multiples.

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