The Maturity of Alibaba Group Holding Ltd (BABA) Vs. The Volatility Of Facebook Inc (FB)

It has been less than a fortnight since Alibaba Group Holding Ltd (NYSE:BABA) went public but the shares have shown such stability that they can be compared to those of a much more established company with sound and reliable earnings for over a decade. This, however, meant disappointment for traders who were counting on Alibaba shares to follow the volatile path, much like those of Facebook Inc (NASDAQ:FB) did when the company went public a couple of years ago.

Analysts attribute the reason for Alibaba Group Holding Ltd (NYSE:BABA)’s share price stability to the controlled manner its initial public offering was conducted. This will reflect on the price of options, trading of which begins today. This also meant that there will not be much demand. Contrast this with Facebook Inc (NASDAQ:FB), which recorded 202,938 puts to sell and 162,482 calls to buy following the days when contracts became available. Alibaba has also been quite consistent in its performance throughout the decade and a half of its existence. The company is trading at 39 times the estimated value based on its 2015 estimated earnings which is significantly higher than compatriots Tencent Holdings Ltd and Baidu Inc (ADR) (NASDAQ:BIDU) which are at 27 times and 25 times respectively.

To date, 3.3% of Alibaba Group Holding Ltd (NYSE:BABA)’s shares have been short sold by bears, which roughly translates into 12.1 million shares. The cost to borrow shares has also come down significantly from 8% initially to 0.5% last Friday. Analysts predict a liquid market for Alibaba and point out that lower borrow rates work to the advantage of bearish traders as short selling makes better sense for them than options. They conclude that while the situation at Alibaba and Facebook Inc (NASDAQ:FB) might sound similar at the outset, things are not quite the same for the two major performers.

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