Globalisation Will Make Tech Stocks Hard to Call

The ongoing saga of Alibaba Group’s IPO continues. The New York Times last week reported that the Chinese e-juggernaut is making a series of investments in US tech firms and had even talked to the very hot Snapchat about taking a stake.

The Times suggests this in part shows a desire on Alibaba’s part to participate in the deal-making world of the US tech and internet sector. However, it may also be an attempt to help analysts apply better valuations to this huge and hugely complex company.

Alibaba’s opacity has journalists reaching for the conditional tense, the modifier, carefully worded coveralls and get-outs.

Here’s the Grey Lady again:

“Alibaba is expected to begin trading in September at a market value of perhaps $200 billion, potentially making it one of the biggest initial public offerings ever.”

“Expected”, “perhaps”, “potentially”… the truth is that nobody has a strong sense of the real value of Alibaba. It’s huge, certainly, but it’s Chinese and China is its biggest market by far (we believe). There are no guarantees it will translate its success in the US or elsewhere. We also don’t know whether its management team will succeed or that it will work well within the strictures of the US markets, although it has added American executive strength. As Winston Churchill said of Russia, it is a riddle, wrapped in a mystery inside an enigma.

Globalisation is making life harder for tech sector analysts who could once have covered much of their beat without leaving a modest stretch of California. Today they have to cover companies like Mercado Libre, the Argentine company quoted on the tech-laden NASDAQ market in the US but with most of its revenue coming from Latin America. Now Latin America is itself an enormous market of course and full of internal variations. And Mercado Libre, like Alibaba with its cocktail of supply-chain depot, online mall, apps and services, is hard to categorise. With elements of Amazon, eBay and PayPal, Mercado Libre is clearly attractive but what’s the true value and how far can it penetrate other markets? These unknowns have made its stock an exotic enigma with bears and bulls sending the stock up peaks and down valleys.

As more companies from outside the usual places line up to take their places on the US markets, there will be much more of this. The hard-won formulas for assessing the performance of Silicon Valley’s finest will be made redundant and stock pickers will either spy wonderful bargains from the global village or decide to leave well alone. And even American tech stocks might become harder to call as analysts factor in the possibilities of new, global audiences and new, global competition. That situation could lead to some big mistakes and big bets: think of the $19bn price Facebook paid for WhatsApp and then say with any confidence whether Mark Zuckerberg got value or not.

The world is changing as countries once written off as basket cases today field powerhouses that challenge the Googles, Apples and Intels of the once US-dominated tech scene. Near-term confusion on the markets will just be one symptom of that change. 


Martin Veitch is Editorial Director at IDG Connect


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Martin Veitch

Martin Veitch is Contributing Editor for IDG Connect

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