Yahoo, MS Fallout Pinches China's Alibaba

Yahoo owns 39 percent of Alibaba's parent, Alibaba Group, and Microsoft's failure to win Yahoo means that potential business opportunities Alibaba might have had with Microsoft, like advertising and online trading, are now unlikely.

"The stock fall was largely expected as Microsoft dropped its bid for Yahoo, and there will be no news for Alibaba in the short term," said Antony Mak, director of sales at DBS Vickers.

'Highly Volatile Stock'

Shares in Alibaba, expected to report quarterly earnings Tuesday, closed down 5.9 percent at 15.24 Hong Kong dollars, or US$1.96, the biggest drop in four weeks, underperforming the Hang Seng index, which eased 0.22 percent Monday.

"This is a highly volatile stock, and is driven by sentiment," said Francis Cheung, an analyst at CLSA. "The news may have affected sentiment but has very little to do with what the company can do in terms of earnings."

Some analysts said the withdrawal of Microsoft's $33 a share bid for Yahoo would help remove some uncertainty. Alibaba Group had been rumored to be seeking investors to buy Yahoo's stake to keep Microsoft from gaining access to Alibaba stock.

"The news is not so negative, but obviously investors are using this as an excuse to sell after a sharp rally last week," said Linus Yip, a strategist at First Shanghai Securities.

Talk to My Parents

Alibaba shares jumped 12.5 percent Friday to a four-week high amid talk that Microsoft, the world's biggest software maker, might raise its bid for Yahoo. However, Microsoft gave up on Saturday after failing to meet Yahoo's requested price of $47.5 billion.

Alibaba declined to comment on Microsoft's decision.

"This is an issue for our parent company only," Alibaba's chief executive, David Wei, said after a shareholder meeting in Hong Kong on Monday. "Three months ago, when this issue was first raised, we didn't have any comment, and we don't have any comment now."

Alibaba shares, which were listed in Hong Kong in November and ranked as the city's most popular initial public offering last year, have slumped 45 percent this year amid a decline for stock markets worldwide, underperforming a 5.9 percent drop on the Hang Seng index.

The stock nearly tripled its IPO price of 13.50 Hong Kong dollars ($1.73), which had valued the company at more than 106 times forecast earnings. The company had earnings of 295 million yuan, or about $42 million, in the first six months of 2007.

Slowing External Trade

Concerns about the impact of a firmer yuan and a slowing U.S. economy on Alibaba's customer base could continue to overshadow the stock, analysts said.

"Alibaba mainly caters to external trade, and I think external trading is going to slow," Cheung said.

Alibaba, which focuses on small to midsize businesses, shrugged off the threat of a slowing global economy, saying this could instead be an opportunity for it and its customers.

"E-commerce helps small- and medium-size companies to control costs, to source better and make better profits -- it could enable them to survive," Wei said.