Alibaba Group Holding Ltd (BABA)

[TRUISM]

Brace Yourself For Flood Of Alibaba Stock
By: Matt Krantz September 22, 2014 8:00 am

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If it seemed like there weren’t enough Alibaba (BABA) shares to go around Friday, that could soon change. Expect more shares to come available as insiders are cleared to sell additional shares.

Just 91 days after the Chinese e-commerce company’s initial public offering, swaths of shares begin to be freed up to be sold. That’s when the first “lock-up” period expires on Dec. 19, 2014, essentially opening up 8.1 million shares held by insiders and investors to be sold. This is a notable amount of stock to be released, accounting for 2.5% of the number of shares sold in the offering and 0.3% of total shares outstanding.

But that’s just the beginning, with two much larger lock-up periods expiring, potentially unleashing a wave of new stock for the market to digest.




Source: Alibaba prospectus, USA TODAY research via Microsoft Excel


Officers and investors in newly public companies often agree to so-called lock-up periods. These lock-up periods are designed to comfort early investors in IPOs who fear holders of the stock might dump their shares right after the deal, pressuring the price. Lock-up periods meter — or slow down — the release of shares to reduce that concern of a sudden oversupply of stock, thus making it easier to sell IPO shares.

Lock-up expiration dates are closely watched by investors in initial public offerings as they can create turbulence by increasing the supply of shares, sometimes in dramatic fashion. Facebook (FB) shares struggled, for instance following the company’s 2012 IPO, as lock-up periods expired allowing new shares to hit the market.

Another bigger lock-up at Alibaba comes off 181 days after the IPO date, or March 18, 2015. That’s when 429 million shares are available for sale in the public market, which is more than the 320 million shares the company sold in the IPO and about 17% of the shares outstanding.

But the biggest lock-up expiration date comes 366 days after the IPO, or Sept. 20, 2015, when 1.6 million shares are allowed to be sold. That is 64% of the shares outstanding.

Demand for the Alibaba shares appears strong enough now to withstand these big amounts of stock to hit the market. Shares of the stock jumped 38% on the first day of trading, an impressive gain given the size of the deal. But with shares trading at more than $93 a share, which is near or above many analysts’ targets, it’s not the easy sell it was at the $68 a share IPO price.




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