Right (and Wrong?) on Yahoo / Alibaba.com

I bought (for a trade) Yahoo (YHOO) last week ahead of the Alibaba.com IPO in Hong Kong

While the shares will trade in Honk Kong, that market has been on fire (up >50% since August) and the time to strike is now, when anything Chinese gets a valuation metric that makes little sense.

The original IPO price makes little difference to me (did we value EMC at the original IPO price of VMWare (VMW)?) - the Chinese took a coal company up 90% on its first day, what do you think they will be doing to a premium internet company? One of the top 2 names in the country (along with Baidu.com) at that? I am fully confident in the Chinese ability to overvalue Alibaba.com. You will see a magnificent unholy spike, it's just a matter of degree. And how much Yahoo falls in line.

So I was correct on my call for the massive overvaluation of this hot tech IPO - however Yahoo appears to be in "buy the rumor, sell the news" mode in early trading. I am still up on the trade but nowhere near where I had hoped the stock would run to. I will see how the day goes before deciding whether to part with Yahoo. Again my thesis has nothing to do with a realistic valuation of Alibaba.com; it has everything to do with the madness going on in Asia for equity shares. Seems accurate but it shows you can be right in your thesis but still the trade doesn't really work out to the level you expect; the stock was a whopping 257x oversubscribed - wow. Here are some comments about the Alibaba.com IPO

• Chinese e-commerce portal Alibaba.com soared on its debut on the Hong Kong stock market Tuesday, with its share price nearly tripling. But analysts said the rise was unsustainable, and that speculators were driving up the price in order to maximize profits.
• Shares of Alibaba.com -- whose Web site allows companies in China and overseas to trade with one another online -- rose as high as 39.95 Hong Kong dollars ($5.15) before closing at HK$39.50 ($5.09), triple its issue price of HK$13.50 ($1.74).
• The portion of its offering earmarked for retail investors -- 25 percent of issued shares -- was 257 times oversubscribed.
• But analysts said the price did not reflect Alibaba.com's true value. "There is a total absence of reason and cause" for the stock's sky-high price, Francis Lun, general manager at Fulbright Securities said. "It's irrational and foolish." Hong Kong investors "trade stocks like they're playing at the baccarat table," he said.
• "It's a great company. But it's very much a proxy for China, the Internet and the appeal of its founder, Jack Ma, and (the price) has nothing at all to do with the business fundamentals put on the table," Paul Woodward, business media consultant at Business Strategies Group, which values the entire business-to-business market in mainland China at $1.41 billion.

*****
Yahoo's stake of Alibaba.com is now worth $7 billion. Considering its entire market is $42 Billion, 1/6th of Yahoo's valuation is now due to Alibaba.com's (over)valuation. But perhaps this was already priced in the stock :)

Long Yahoo in fund and in personal account