Barron’s on Alibaba : The Stock Will Tank 50%


Chinese online retailing behemoth Alibaba took the stock market by storm when it went public almost exactly a year ago.

The September 19, 2014 IPO priced at $68 per share, giving the company an eye-popping valuation of $168 billion.

“Today what we got is not money,” CEO Jack Ma said that day. “What we got is the trust from the people.”

But in a new, devastating 3000-word cover story for Barron’s, Jonathan Laing struggles to find any redeeming qualities in the company and its stock.

For starters, Laing believes the stock, which closed at $64.68 on Friday, is worth half that.

… Forty-five of the 52 brokerage analysts covering the company still have Buy recommendations on the stock, according to Bloomberg … The average price target of this crowd: $95.50, up nearly 50% from the current level. It’s time to get real. A decline of up to 50% looks far more likely. Alibaba shares trade at about 25 times the consensus earnings estimate for the year ahead, and that should be closer to eBay ’s (EBAY) multiple of 15 …

In addition to the rich valuation, Laing warns about competition and discusses the history of Chinese IPOs that went from hot to cold.

However, the bulk of Laing’s screed raises red flags about corporate governance, conflicts of interest, counterfeit goods, and various other questionable business practices.

Particularly disturbing was the suggestion that Ma and his team might actually be making up some numbers, including its very flashy revenue growth stats, which Laing notes are considerably larger than other large tech growth companies like Google,, and Facebook.

… Anne Stevenson-Yang, founder of Chinese research firm JCapital Research, has closely tracked the mainland e-commerce industry in general and Alibaba specifically. She finds the growth numbers puzzling. She observes that “Alibaba’s financial reports have broken free of verifiable reality and have reached an escape velocity that doesn’t comport with Chinese government figures of overall retail sales, consumer spending, or online commerce.” Consider this: Alibaba claims to have 367 million users — about the same as one government agency’s estimate of China’s entire online-shopping population. Or this: Alibaba claims its average shopper spends 26% more on its sites each year than the average U.S. online shopper spends on all sites. Does that make any sense, given American consumers’ far greater affluence and ability to avail themselves of a vastly more developed e-commerce ecosystem?

… That $1,215 average spend at Alibaba also seems high in view of the total average annual per capita expenditure in China, online and at physical stores; that stands at about $2,260.It strains credulity that the average Alibaba user would spend over half of his consumer outlays on Taobao and Tmall, given that the sites have a negligible presence in categories that account for the bulk of consumer spending, like food and beverages, housing, transportation, home health products, and restaurant dining 

Laing notes that Alibaba denies any of its reported figures have been inflated.

Ma’s rags-to-riches story and disarming charm has probably helped Alibaba sell an image of integrity. But Laing’s take-down of the company is comprehensive and detailed enough that you can’t help but be left with a little doubt in your mind that something fishy is going on at the company.

“In the end, gaudy financial reports can only work for so long before reality intrudes,” Laing writes. “This hard lesson figures to be driven home to Ma and his trusting investors in the coming years, and it won’t be pretty. ”

Read Laing’s whole story at

Protect your Profits


The $199 HP Stream 14, The First Of Microsoft’s Chromebook Killers


In mid-July, Microsoft announced its uber-cheap line of Windows 8.1 notebooks, with the cheapest model from HP, called “the Stream,” costing just $199.

With such a cheap price point, Microsoft is taking aim at Google’s line of super-cheap Chromebooks, which also start at $199.

Chromebooks are flying off the shelves thanks in part to the education sector, which is swiping up Google’s cheap internet-powered notebooks for classroom use. But Microsoft believes its own cheap laptops could better compete in the enterprise, particularly in financial services and banking, thanks to its popular Windows software.

Microsoft and HP didn’t show off the Stream notebook when it was announced in July, but thanks to some sleuthing from German site Mobile Geeks and Liliputing, we can now see several purported listings of HP’s Stream 14, which will rival the company’s Chromebook 14 in terms of technical specifications, even though the Windows 8.1 model will be roughly $80 cheaper.

As PCWorld’s Ian Paul points out, the Stream 14 and Chromebook 14 share many of the same specs, including the same number of ports, same 2GB of RAM, and same 14-inch display with a 1,366×768 resolution. But the Stream 14 comes with a more powerful quad-core 1.6 GHz system-on-a-chip from AMD, compared to the 1.4GHz Intel Celeron processor that powers HP’s Chromebook 14.

The Stream will also boast more onboard storage: Compared to the Chromebook 14’s 16GB of storage, the Stream will offer 32GB and 64GB options.

Based on the leaks, the Stream will also boast a 720p front-facing webcam, Bluetooth 4.0, a USB 3.0 port, four speakers with Beats audio, and a 2,960mAH battery. The laptop will also run on Windows 8.1 and ship with two-years and 100GB of cloud storage from Microsoft’s OneDrive.

But of course, the Stream 14 notebook hopes to attract users with its price point. Compared to most entry-level PCs, which typically cost around $1,000, Google’s various Chromebooks average at about $300. Microsoft’s first batch of cheap Windows 8.1 notebooks will cost between $199 and $279.

Microsoft has an anti-Google website called “Scroogled,” where the company collects and creates material to put down Google’s various services. When it comes to the Chromebook, Microsoft’s main criticism is that the computer “is a brick” when it’s not connected to the internet, since most Chrome OS applications require an internet connection. Google looks to address some of those criticisms by adding more apps that work in offline mode.

So, as it turns out, Microsoft and Google have succeeded at creating near-identical laptops at near-identical prices. But the HP Stream 14 laptop might get the slight edge right now since it can do more when it’s offline.


Akamai Technologies

AKAM : NASDAQ : US$57.86
Target: US$68.oo

Akamai provides content delivery and cloud
infrastructure services for accelerating and improving the
delivery of content and applications over the Internet,
ranging from live and on-demand streaming videos to
conventional web content, to c-commerce tools. The
company is headquartered in Cambridge, Massachusetts


Telecommunications — Telecommunications

Investment recommendation
Akamai hosted its annual investor day on Tuesday, reiterating some of the
common themes that continue to support our long-held BUY-rated thesis.
With overall Internet traffic growth continuing to accelerate and with the
likely traction of newer lines of business like carrier services or the
security business, we believe top-line revenue growth will continue at the
mid- to high-teens range with the potential for continued margin
expansion over time. With two stellar quarters behind us at a very
controversial time for the company and with Q1/14 guidance that far
exceeded expectations, we continue to recommend the shares. With
increasing confidence in the outlook, we increase our target to $68,
representing a 12.0x EBITDA multiple and 26.0x EPS on 2015 estimates.
Investment highlights
Solid momentum likely continues – Although the company avoided talk of
the near-term trends that resulted in the recent increase in Street
estimates, we believe Akamai continues to greatly benefit from being one
of the few sources capable of terminating incremental traffic on
increasingly constrained ISP networks.
Outlook calms fears – With the recently renewed contract with its largest
customer, estimated to be 9% of revenues and growing, we remain
confident 2014 will possess significant tailwinds. However, it remains
unclear when Apple will begin to migrate any traffic to their developing
CDN network. Longer-term guidance was adjusted on Tuesday, but only
Incremental growth drivers on tap – With the investments in the sales
force and ordering systems in 2013that continued into 2014, we expect to
begin to witness returns that could drive revenue growth and EBITDA
margins higher. However, in the near term we would expect some
incremental dilution from the integration of the recent Prolexic aquisition.


AWAY : NASDAQ : US$42.96 
HOLD  Target: US$43.00


Summary  HomeAway reported strong Q4 results, as the core subscription business performed well and the launch of the PPB model resulted in strong listings growth. We believe management’s major focus for the next couple of quarters will be growing PPB listings and harmonizing monetization of PPB and subscription. This is good progress; with monetization questions ahead, international expansion delaying margin expansion, and a premium valuation, we retain our HOLD rating while acknowledging the encouraging progress over the second half of 2013.
Key Points  Bullish: strong PPB listings growth; solid subscription listings grrowth and ARPL expansion driven by tiered pricing; renewal rate ticked up sequentially for the first time since Q1.
Bearish: monetization levels from PPB are still to-be-determined – this spring/summer should be an important time for validating this model; international expansion delays margin expansion; PPB may require SEM spend that could compress margins further.
Estimate Changes: We are slightly raising our FY14, and FY15 revenue estimates to $434M and $499M from $402M and $462M, and lowering non-GAAP EPS estimates to $0.72 and $0.95 from $0.82 and $0.99.
Valuation We are raising our price target to $43.00 (from $30.00). Our new price target is based on 45x our revised 2015 EPS estimate of $0.95.

Akamai Technologies BUY Target Price $56

AKAM : NASDAQ : US$47.68
Target: US$56.00

Akamai provides content delivery and cloud infrastructure services for accelerating and improving the delivery of content and applications over the Internet, ranging from live and on-demand streaming videos to conventional web content, to c-commerce tools. The company is headquartered in Cambridge, Massachusetts.
All amounts in US$ unless otherwise noted.

Investment recommendation
We maintain our BUY rating and $56 price target ahead of its seasonally-strong Q4 report that is also expected to be potentially impacted by the “catch up” contract repricing with its largest customer. Despite this well-articulated headwind, we continue to expect another solid quarter report as we believe the potential drag has been well reflected in investor expectations and that organic growth from favorable secular trends will more than offset the negative impact over time.
Investment highlights
 Solid CDN traffic growth expected – With the majority of the software downloads for the initial iOS7 and subsequent updates expected to have occurred in Q4/13, we expect the traffic growth for the Media Delivery Solutions business to be strong in the quarter. Combined with the continued proliferation of over-the-top video traffic growth, we believe the company will deliver another quarter with robust traffic growth of the traditional CDN business.
 Security, e-commerce continue to benefit – As the consumer holiday purchases continue to shift towards mobile and other online venues, we believe the growth in Akamai’s e-commerce business will remain strong as the company facilitates fast and secure online transactions with its massive infrastructure and optimization software. Performance & Security business will also benefit from the continued IT outsourcing trends as enterprises increasingly focus on performance and reliability in their cloud migration.
 Temporary speed bump provides opportunity – Despite investor concerns due to a large contract re-pricing, we believe Akamai remains a unique asset well positioned to benefit from multiple favorable secular trends (mobile, cloud, online video and security). As such, recent volatility creates an opportunity to accumulate its share, in our view

Facebook Update Target Price $70

FB : NASDAQ : US$53.53
Target: US$70.00

Technology — Internet
Investment recommendation
Facebook reported another strong quarter that was dominated by the
continued transition to mobile, which brings fewer ads at higher prices.
This trend should continue in 2014, along with the probable ramp of
Instagram revenue and video ads. We expect several more quarters
ahead of expanding newsfeed ad pricing, and also suspect the ad model
on Facebook will continue to evolve rapidly, leaving room for future
positive surprises.
Key Points
 Bullish: Ad pricing was up 92% y/y, driven by mix shift to newsfeed
ads on mobile; ad unit pricing has not yet begun to expand; DAU
grew 22%, including respectable 9% growth in U.S. & Canada.
 Bearish: Ad impressions were down ~8% driven by mix-shift to
mobile; expect operating de-leverage in 2014, as expenses are
expected to grow 40-45%, faster than we had modeled.
 Estimate changes: we are slightly raising our FY14 and FY15
revenue and non-GAAP EPS estimates to $10,763M/$13,559M and
$1.15/$1.55 from $9,956M/$12,822M and $1.06/$1.38.
We raise our price target to $70 (from $62), based on 45x our revised
2015 EPS estimate of $1.55 (up from $1.38).

eBay Update Target Price $64


EBAY : NASDAQ : US$54.41
Target: US$64.00

Founded originally as an online auction site in 1995,
eBay has evolved over the years and aspires to now be
recognized as an eCommerce enabler. The company is
headquartered in San Jose, California, and operates
three main business segments: Marketplaces, Payments,
and GSI.
All amounts in US$

Technology — Internet
Investment recommendation
eBay posted an in-line Q4 and issued guidance for 2014 that was below
consensus but better than the worst fears. Management updated its
three-year outlook with lower 2015 revenue guidance (15% growth at
mid-point) and lower payments margins which should pressure EPS
growth to “greater than 10%”. We view the new guidance as largely derisked
(although not overly conservative), and suspect this dynamic may
bring in fresh investors who are attracted to eBay’s reasonable valuation
at a time when much of the Internet sector is more expensive.
Key Points
 Bullish: Operating leverage in Payments leads to big (albeit
temporary) segment margin expansion; fixed-price GMV growth of
19.1% accelerated slightly from Q3; $5 billion repurchase
 Bearish: Revenue growth hovering in the 14-15% range is lower
than we hoped for a year ago; payments margin should be under
pressure for at least two years (although we believe this is more
opex/investment driven with smaller pressure on take rate).
 Estimate Changes: We are lowering our FY14/FY15 revenue
estimates to $18.2B/$20.9B from $18.2B/$21.3B, and non-GAAP
EPS estimates to $2.98/$3.35 from $3.14/$3.65.
Rolling over to 2015: we are raising our price target from $60 to $64.
Our new target is based on 19x (unchanged) our 2015 EPS estimate
(rolling over from 2014) of $3.35, (down from $3.65).