Alibaba IPO is last thing this market needs

The giant sucking sound of money flowing out of everything else into this deal will drown out anything good that might happen.

By Jim Cramer May 7, 2014 11:37AM

The logo of Alibaba Group in China © Ju Huanzong/Rez FeaturesThe last thing this market needs is an initial public offering from Alibaba. I can't even begin to tell you how many things can go wrong, how many bells can go off and how much havoc there could be with this deal.


It may be the most fraught part of this stock landscape.


TheStreet.com logoAnd it can't be prevented. It's going to happen. And the odds of it happening in any orderly, positive way seem so long right now that you have to wonder if the Alibaba IPO wasn't put on Earth to ensure this now-broken bull market in technology and e-commerce not only dies but stays dead.


First let's deal with the symbolism. Right now, the size of this deal could rival the $19.6 billion Visa (V) deal or the $16 billion Facebook (FB) IPO. Visa? The first thing you should ask yourself when you hear talk of that size is "Where is the money going to come from?" The answer: from Facebook, from Amazon (AMZN), from eBay (EBAY), from Google (GOOG) and from the rest of the most struggling cohort in this marketplace.


Now, let's say the deal exceeds Visa and Facebook in size. Can you imagine how many times you will have to hear "A Chinese internet IPO that's the biggest deal ever -- doesn't that have to mark a top?" It's such an easy question, and it will be asked so many times that I think it could actually become self-fulfilling. I could see myself saying it half a dozen times today alone.


It gets worse. Sure, "Alibaba is synonymous with e-commerce in China," as it says in the offering document. Absolutely, this company is "China's largest online shopping destination," with China's "most popular mobile commerce app." Yes, it had $248 billion in total gross market value revenue, more than that of Amazon and eBay combined. It received 11.3 billion annual orders from 231 million buyers, including 136 million mobile monthly average users in the still very undeveloped retail market in China. It does have a fabulous ecosystem, with 620,000 marketing affiliates and 980,000 direct and indirect cloud customers.


There's also its 57 percent revenue growth -- faster than that of Facebook -- and that growth seems to be accelerating as more and more Chinese get on the Internet and go mobile. The company has a one-day business that crushes our Christmas gift-giving. Yes, Singles' Day, on Nov. 11, generated $5.8 billion in sales, or 5 billion packages from 254 million people. Amazon would kill for that kind of holiday traffic.


Most noteworthy of all, Alibaba is extremely profitable and has a gigantic gross margin of 47 percent. The company made $3.1 billion in profit for the first nine months by taking a huge cut on each order, a great deal of it coming from a search engine that's the envy of Google.


But if you read through that offering document, the only thing you should be thinking about is that holders of Amazon, Google, eBay and Facebook will be tempted to sell their stock in order to pick up Alibaba. It is one gigantic magnet that will suck out capital from all over the place, as there just isn't enough freed-up money in the entire marketplace for this one.


These stocks -- whose metrics are pretty much all inferior to those of Alibaba -- are all for sale anyway, before this deal has even arrived. It's become common parlance that all of these stocks are bubbles, that all are one step from the short-selling posse. Alibaba should tip them all into vicious sell mode as the money pours from them to this deal.


Then there are the complications coming from the ownership structure. Yahoo (YHOO) owns 40 percent of the company, and it has stated that it wants to be a seller of its stock so it can expand its own business and buy back its own stock with the proceeds. Sorry, but if Yahoo wants to sell, why the heck should I be a buyer of Facebook? Why not just go be a buyer of Yahoo? If the Alibaba IPO comes well north of $20 billion, something that's always possible, the rest of Yahoo will come to cheap. However, you can then hear the catcalls already. Will it be cheap? Or is Yahoo undermanaged and worthless? Is it a value trap? Yes, I can hear the catcalls already. More supply from all over the place.


Now, let's deal with the real elephant in the room. This company is predicated on Chinese Web growth and Web sales. Who has faith in China? The country itself seems to be decelerating by the day. Was Singles' Day a one-off, a silly holiday that will go away? Does the Communist Party like this company and the wealth it creates? Does it want that level of consumption? Could the Communists shut it down? Could they create a competitor? Why not? This government, and its oversight of the financial aspects of companies there, has a horrendous track record when it comes to policing capitalism. So many Chinese deals have been busts. Plus, even when they blow out numbers, as Baidu (BIDU) has done, it's a total bust. Why bother with this one other than because of the hype?


Yes, this lucrative high-growth company has all of the earmarks of disaster for the rest of the market. If the Alibaba deal comes at a lower price, it will be regarded as a failure. If it comes at a higher price, it will be overvalued. There is no just right pricing. Then there's the confusion of the whole ownership structure, and the inability of any exchange to allow us to feel confident about the handling of a deal like this. In light of this, every day leading up to the deal will be another day of potential ruination as the selling proceeds apace to get the funds to participate and weight themselves into this deal -- one that's too big for institutions to ignore.


In short, I am dreading this deal like a Chinese plague. You should, too.


There is only one thing that can save this deal: If everyone reviles it as much as I do. That way, you can get something done that won't wreck the rest of the tape. But given the precarious nature of the segments in which Alibaba plays, and given the recklessness of the bankers who control these things, I figure there have to be multiple debacles ahead.


I am not a fan of "Sell in May and go away." If it didn't rhyme, I don't know whether people would even say it. But I could be a fan of "Sell in front of Alibaba and go away."


Yes, that's how concerned I am about this deal and its consequences for the entire stock market. The giant sucking sound of money flowing out of everything else to flock to this deal will drown out anything good that might happen.


Wrong time. Wrong business. Wrong cohort. That's the Alibaba deal in a nutshell: the classic top signal for all to see. Let's hope this oncoming train doesn't jump the rails and plow into the rest of the market. I just don't know how that accident won't happen.


Jim Cramer on MSN Money


Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio for the stocks Cramer thinks could be winners. The portfolio is long FB and GOOG.





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53Comments
May 7, 2014 12:06PM
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The entire issue should be put into perspective by reading the head article at present Jim.  Yellin sees trouble for a long time to come.  Whether this IPO does anything is small when standing next to the FED Chairpersons words.  We will see false interest rates and debt by the FED for years to come, if not forever.  Most with any knowledge understand to stop all this fake Capitalism will undoubtedly result in a total collapse.  It is all bogus from here on out Jim.  The Chinese economy is but a shallow promise of riches to come.  At present the Chinese are running out of Americans money and if one can't see all the calamity that gets closer and closer to fruition each day isn't seeing very well. The FED is not just our FED any longer in that its' policies attempt to cover the entire emerging world economy and I don't see any way out of the entire foolish idea resulting in collapse.  The idea we could assume a work force and economy ten, twenty, thirty times the size of ours is complete foolish nonsense and Jack Welch or whomever came up with the idea is just plain out of it.    America needs to be the beacon of light for the rest of the world by being America all by itself for the most part. This New World Order garbage was a great idea for sitting around for an after dinner drink and chat but when will it be understood by our political crowd it will not work and the price we are paying is and will destroy America. JMHO
May 7, 2014 1:54PM
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AliBaba and the Forty Thieves? Well maybe only 4 including FBook, Google. LinkEd and Twitter?
May 7, 2014 1:21PM
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I'd rather buy American or European than send money across the Pacific.
May 7, 2014 1:28PM
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The "bashing" on the NASDAQ, is quit simply explained CGT, about 6 listed Companies are taking it down...

5 Tech/Internet players and Whole Foods Inc....

King (Candy Crush)

AOL

Yahoo

Twitter, and maybe

Groupon....

May 7, 2014 12:03PM
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$248 BILLION in revenue?  More than Amazon and E-Bay combined?  Holy cannoli, Batman!!!!!!!!
May 7, 2014 12:10PM
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What I would take away from the mountain of drivel above is that cramer and his loathsome masters are looking to buy Alibaba on the cheap.

You can go to Alibaba and have let's say 100 DVD players manufactured under any brand you choose - "cramerisaputz" DVDs for example.

As long as the west keeps buying chinese goods alibaba will be a monster.
May 7, 2014 1:07PM
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Have some Chinese food Bobo........ you will feel "right as rain"
May 7, 2014 1:53PM
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Alibaba my A$$!


Once again MSN uses Cramer as a lightning rod for commentary rather than to allow exchange on more substantial subjects.

May 7, 2014 2:39PM
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Does this IPO matter? YES. It will sway the stupid people of the world to pursue more goods with a purchase price and shipping cost BELOW what they actually are. It allows China- the underminers of the world to flush rat-infested garbage out of ten-mile-long warehouses and sell it to people who pay ZERO attention to the economy around them. So what? The globe cannot afford anymore fiat money, central bank control, underminer-retail, techno-train wreck gyrations, social media acting like it's actual "tech" and disgusting political sell-out for a few pennies. 
Will I invest in it? Nope. I will counter-invest in the goods they sell on it because once the stores in their warehouses thin out and the world will be without genuine manufacturing for more than 10 years... it should be pretty evident what will have value. We are absolutely STUPID. Instead of some dumb shyster IPO, we should be- closing banks, ending the Federal Reserve and getting RID of Wall Street. Then China and the GOP would be dead-in-the-smelly-water they created... wouldn't they? 
May 7, 2014 5:16PM
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"During his March visit to the Kingdom, President Obama chose not to raise human rights issues with King Abdullah or other Saudi officials. Prior to Obama’s trip, a bipartisan group of 70 members of Congress urged Obama to address Saudi Arabia’s ban of women drivers and other important human rights cases."

 

Obama's war on women continues.

May 7, 2014 3:40PM
May 7, 2014 3:24PM
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This means buy....cramer is typically wrong 
May 7, 2014 3:24PM
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Does this IPO matter? YES. It will sway the stupid people of the world to pursue more goods with a purchase price and shipping cost BELOW what they actually are. It allows China- the underminers of the world to flush rat-infested garbage out of ten-mile-long warehouses and sell it to people who pay ZERO attention to the economy around them. So what? The globe cannot afford anymore fiat money, central bank control, underminer-retail, techno-train wreck gyrations, social media acting like it's actual "tech" and disgusting political sell-out for a few pennies. 
Will I invest in it? Nope. I will counter-invest in the goods they sell on it because once the stores in their warehouses thin out and the world will be without genuine manufacturing for more than 10 years... it should be pretty evident what will have value. We are absolutely STUPID. Instead of some dumb shyster IPO, we should be- closing banks, ending the Federal Reserve and getting RID of Wall Street. Then China and the GOP would be dead-in-the-smelly-w​ater they created... wouldn't they? 
May 7, 2014 1:50PM
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Alibaba my A$$!


Once again MSN uses Cramer as a lightning rod for commentary rather than to allow exchanges on more substantial subjects.

May 7, 2014 1:29PM
May 7, 2014 5:15PM
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("VV" You can tell me more tall tales and lies tomorrow, cretin) --

I have a good one I am working on about a short, fat, pudgy fingered loser who spends all day on the internet bashing President Obama .....he works for aipac and has no life outside of this. He makes up all kinds of stories about his brave family (one of whom was a child soldier in WW2) in the hopes that hundreds of people he does not know are impressed by him. 

He brags about his massive wealth and also his families (they all drive BMWs which as well know is the sign of absolute success - at least in CERTAIN types of communities) ....at heart though he is a sad lonely little man who has nothing and almost certainly spends his evenings with a Cup O noodles and a 14 inch B&W TV ....we should pity him ! 
May 7, 2014 4:16PM
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So barry tell us a little more about where your WW2 vet daddy fought at the ago of 15 ???  Was it Monte Casino ....Iwo Jima ....Battle of the Bulge (your favorite no doubt) ....or was it just in your imagination ....

:)

May 7, 2014 4:05PM
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Really though we should all respect barry -- after 2 - 3 years of posting his anti American aipac israeli likkudi garbage he informed us his 86 year old daddy fought in WW2 at the ripe old age of 15 !!!

And he has the audacity to question the veracity of others !!

Keep swallowing the tube steak barry ...after all it's a family tradition right loser !!!  :0

May 7, 2014 3:29PM
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Eff'd your spy-ware up... didn't I? Pimple Minks and ABS work in the same office... with Karl Rove. 
May 7, 2014 5:17PM
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Bush only held hands with the saudis (literally) and made sure they were allowed to leave the country after 9/11 when the Feds wanted to speak with them .....
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