NEW YORK (TheStreet) -- The story of this week is Alibaba's (BABA) IPO slated for Friday.
Last week, Jim Cramer said this would be a down week for the markets as fund managers unloaded other stocks in order to prepare to buy shares of Alibaba. On Friday, I got a call from a business journalist who had heard so much positive news about Alibaba that she wanted to hear a more skeptical view of the company.
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After the Facebook (FB) IPO, I suspect some in the business media are taking a "Fool me once..." attitude to the Alibaba deal. If it's so loved, the thinking goes, something must be wrong.
I'm not a journalist. I am a fund manager who happens to write. And I believe I've been bullish on Alibaba for longer than anyone in North America other than the folks at Yahoo! (YHOO) who made the original investment in Alibaba back in 2005.
I met Joe Tsai, now Alibaba's vice chairman, back in 2010 in Hong Kong. After a very pleasant meeting with him in which he told me about the empire the company had created, I was salivating to invest in it.
Back then, I didn't imagine the company would come public in 2014 at close to a $200 billion valuation. Because I owned Yahoo! stock after that meeting and haven't sold it since, I hoped that Alibaba would go public much sooner than this year. I expected it could get $75 billion by 2013.
But the growth has never really stopped at the company. So, if you take a price-to-earnings ratio based on where a company such as Tencent (TCEHY) is trading, Alibaba isn't going to be overvalued until it trades at more than $215 billion in valuation, or $87 a share. (This comparison probably is unfair to Alibaba, however, because I would say its revenue is worth more than gaming revenue.)
The complaints I hear on television most often about Alibaba concern two things:
- transparency; and
- corporate governance
Back in early 2011, Alibaba Chairman and CEO Jack Ma announced that Alipay had to be removed from Alibaba Group and placed in Chinese nationals' hands because his government demanded it. This upset a lot of investors in the U.S. who disliked "China risk," and Yahoo! investors in particular.
David Einhorn had owned Yahoo! stock before Alipay was removed from Alibaba Group. He sold his Yahoo! stock afterward, saying this wasn't what he had signed up for.