Chinese tech stocks take a beating in US

An employee of Alibaba Group answers questions from a visitor in the group's headquarter in Hangzhou, Zhejiang province. Alibaba seeks to raise at least $1 billion through an IPO in the US. Long Wei / For China Daily

Government's Internet cleanup campaign is said to be behind drop

Chinese tech companies are undergoing price corrections in the US stock market. Analysts said pressure may increase with e-commerce giant Alibaba seeking to raise at least $1 billion through its US IPO.

Share prices of Chinese online media servicers Youku Tudou Inc and Sohu have tumbled by roughly 32 percent this month.

Shares of Sina Corp, a Chinese Internet portal operator, sank by 29.5 percent. Online real estate service provider SouFun retreated 20 percent, and online travel agency Ctrip declined 11.6 percent during the period.

Analysts said the slump of IT companies was directly attributable to Chinese authorities' campaign to clean up the Internet.

Shares in Sohu sank to a one-year low last Monday in New York after China ordered the company to remove the US television show The Big Bang Theory from its website. Peers, including Youku Tudou and Baidu, also tumbled after their video business was affected by the campaign.

Weibo Corp, the latest Chinese IT company to debut on Nasdaq, tumbled heavily in late April when its parent company, Sina Corp, lost several online publication licenses and was fined by the authority for pornography offenses.

"On the other hand, the correction seems natural, as some companies had earlier experienced aggressive growth. Investors are concerned about China's macroeconomy and the US' QE [quantitative easing] tapering," said Liu Yanfeng, a partner at Horseshoe Bay Capital in Beijing.

Liu said Alibaba's IPO would definitely impact other Chinese firms listed on the US market.

"For one thing, it will divert capital on the secondary market. For another, the valuation of Alibaba is crucial. If it is set too high and faces downward pressure after its IPO, other Chinese listed companies are highly likely to be affected," he said.

Overseas investors returned to Chinese IPOs in late 2013 after mostly avoiding them for years following accounting scandals and delistings. However, some analysts said the brief romance may be over, mainly due to concerns over slowing economic growth.

"Valuations of most Chinese firms are relatively high at this stage," Liu said.

Some companies saw share prices surge by five times within a year, and it is hard to tell whether prices are done correcting yet.

On the other hand, analysts upgraded some companies after their share prices hit historic lows.

Sohu was upgraded from a "neutral" to "overweight" in a report released by HSBC on Friday, T.H. Capital maintained an "overweight" rating for Ctrip and a target price of $66 this week.

Of the Chinese companies now preparing IPOs, the most notable is Alibaba. Zhaopin, China's biggest job recruitment site, filed on Wednesday for an initial public offering on the New York Stock Exchange. It hopes to raise up to $100 million.

Alibaba rival JD.com is reportedly planning an IPO for later this year.

Timeline

Major events in Alibaba's development

2000

SoftBank Corp invests $20 million in Alibaba. The company goes on to acquire more than 30 percent of Alibaba after its initial public offering in the United States.

August 2005

Yahoo Inc inks a strategic partnership with Alibaba, agreeing to invest roughly $1 billion to get a 40 percent stake in the e-commerce company.

2007

Alibaba lists its Alibaba.com (1688.com), a business-to-business site focusing on exports, in Hong Kong. At an IPO share price of HK$13.50, Alibaba.com raises HK$13 billion.

May 2012

Alibaba buys back half of Yahoo's 40 percent stake in the company for $7.1 billion. Yahoo is poised to pare 40 percent of its remaining Alibaba stake in the coming IPO.

June 2012

Alibaba delists Alibaba.com (1688.com) from the Hong Kong main board.

Alibaba, which held 73.12 percent of the site, buys back the remaining 26.88 percent from shareholders at HK$13.50 each, involving as much as HK$19.6 billion.

September 2013-October 2013

Alibaba had been in talks with the Hong Kong exchange's listing panel to establish a system whereby founder Jack Ma and other top executives could nominate most of the company's board and submit the proposed directors' slate to shareholders for a vote. Hong Kong doesn't allow the dual-class structure favored by Facebook Inc, Google Inc and other US-listed technology companies.

The disagreement between the two sides leads Alibaba to call off its IPO plan in Hong Kong in early October.

March 16, 2014

Alibaba officially confirms it will hold an initial public offering in the United States.

May 7, 2014

Alibaba files for the IPO in the US. The company hasn't decided whether to list its shares on the New York Stock Exchange or Nasdaq.