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.
I recall someone referring to the actions of Jack Ma as "red collar crime" and a warning as to why you should generally avoid investing in Chinese Internet stocks.
Anyone saying you shouldn't buy Alibaba at the IPO now is basically recycling these Einhorn and "red collar crime" arguments from three years ago. They're saying it's a risky investment.
And they're right that it is risky. It has always been risky to invest in a variable interest entities, but all Chinese Internet stocks have this structure. You could wake up on any given morning and the Chinese government could deem your investment worthless.
For 15 years, you've had this risk, and you could have chosen to have no exposure to the growing wealth of the Chinese consumer. By all means, you can do that again now if you don't like Alibaba's "transparency."
As far as governance goes, Jack Ma, Joe Tsai, and everyone else on the management team believes they are smarter than you and me when it comes to how that company should be run. This is not really any different than the attitude of those guys named Zuckerberg and Page. If you are going to protest your lack of shareholder rights at Alibaba, I'm sure you've also sat out Google's (GOOG) rise from $40 to now more than $500 since its IPO and Facebook's doubling since its IPO.
By all means, exercise your right not to buy the stock.
But if the question is "Is Alibaba the 'real deal'?," it's as real as the other tech companies I've mentioned.
Will it keep going up after its IPO? Look, a meteor could hit the earth. Or we could have a momentum stock correction next week similar to the one we had in March. However, assuming we don't and all the other stocks around us keep trading at similar levels to where they are now, Alibaba is currently priced relatively cheaply and still has lots of growth opportunities in front of it -- without even including a ramp-up of its international growth.
I expect Alibaba to trade up to $115 a share by some time in 2015.
I'm exposed to this likelihood mostly through Yahoo!, but I expect to also own Alibaba on this run-up.
Alibaba is a special company. There aren't many that come along like it in the tech world -- perhaps a handful a decade.
It's the real deal.
At the time of publication, Jackson held shares of YHOO, although positions can change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.