Hedge funds appear to be salivating over Alibaba.
The Chinese e-commerce company’s initial public offering is set for Sept. 19 and is already drawing significant attention from the so-called smart money.
Billionaire investor Leon Cooperman is one of Alibaba’s fans.
“We like what we see so far and we are highly impressed with Jack Ma and his management team,” Cooperman, founder of $10.4 billion hedge fund Omega Advisors, said in an email. He added that he had met with Alibaba executives and plans to invest in the stock once it goes public.
Three other major hedge fund investors who have shown interest in the IPO are Dan Loeb of Third Point, David Tepper of Appaloosa Management and Dan Benton of Andor Capital Management. All three were among the roughly 800 people—300 more than expected—who attended Alibaba’s first road show presentation Monday at the Waldorf Astoria hotel in Manhattan, according to witnesses.
Spokesman for their respective firms declined to comment or didn’t respond to requests on if the men planned to invest in the company. Loeb has previously invested in Yahoo and once called “hidden jewel” Alibaba “central to our investment thesis” in Yahoo.
Those hedge fund heavyweights have company.
Media reports indicate that Alibaba received enough orders to cover its entire IPO after just two days of its road show in New York and Boston this week. That account could not be verified; one hedge fund employee who spoke with a Morgan Stanley banker this week was told that “the books are building” and that there’s demand from around the world. The banker could not comment on if the deal was oversubscribed and by how much, according to the person.
A spokesman for Alibaba declined to comment. Spokesmen for the major banks running the IPO—Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Citigroup—also declined or did not respond to requests for comment. Major technology-focused hedge funds also would not comment, including Coatue Management, Viking Global Investors, JAT Capital Management, Discovery Capital Management, Maverick Capital and Jericho Capital Asset Management.
Some hedge funds have already bought into private shares. Those funds notably include Tiger Global Management and Glade Brook Capital Partners. Both firms declined to comment on if they would hold their shares at the IPO or buy more.
One hedge fund manager, who asked not to be named for fear of exposing his firm’s plans, explained his bullish view.
“A lot of people are obviously excited about this,” he said after attending the road show event Monday. “Every single fund is going to be playing this.”
The manager has long-held positions in the stock via previous Alibaba backers SoftBank and Yahoo and plans to invest at the IPO. He cited several reasons for his optimism.
One was that he expected Alibaba to continue to add revenue from mobile sales, as Facebook has effectively done in moving away from a reliance on desktop users. Assuming continued mobile growth, he said net income in 2015 could be closer to $10 billion, as opposed to the $7 billion projected by Alibaba’s bankers. As a result, he noted, Alibaba could be worth more than $300 billion—about $100 billion more than other estimates.
Other reasons he gave include the vast size of the potential Chinese market. He noted the country’s low use of credit cards and the dominance of Alipay, the company’s e-payment platform. He said Alipay could be worth $30 billion to $40 billion alone.
The IPO is expected to price between $60 and $66 a share, according to Alibaba’s prospectus. The person said the stock could eventually go to $100 a share.
“The deal’s obviously going to be very hot and very oversubscribed,” he said.
One fund manager sounded caution on trading the IPO despite a generally bullish view on Alibaba.
“While we are very positive on the fundamentals of Alibaba—we have met with the company many times in China—there are reasons to be cautious about the stock in the near term,” Will Graves, head of approximately $200 million hedge fund Boardman Bay Capital Management, said in an email.
Graves has already played so-called synthetic shares of Alibaba by owning SoftBank and Yahoo. He said Boardman Bay has requested IPO shares and plans to invest if it prices in the expected $60 to $66 range.
“Unlike most IPOs, there is already a large and freely tradable portion of the float that will be in private hands. In fact, over the years, we have seen countless offers for shares in the private market,” Graves said. “The sheer magnitude of the offering, in addition to those private shares that are not locked up on the first day, may lead to more volatile profit-taking than normal.”
Indeed, private equity firms Silver Lake, Asia Alternatives Managementand Siguler Guff plan to sell some of their existing shares, according to the Alibaba prospectus.