Eye on Amazon amid Alibaba IPO lift off

The eagerly anticipated mega IPO by Alibaba will kick off tonight on the New York Stock Exchange.

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Source: Bloomberg

We’ve been seeing many signs of strong interest, especially after the price confirmed this morning at $68 per share.

This was at the top of the $66-$68 range which was raised from $60-$66 after seeing strong demands.

Going by Alibaba’s IPO pricing of $68, there is likely to be some upside on its trading debut. The price suggests Alibaba will trade at around 29 times earnings, which will put it at a discount to some industry peers.

For example, the IPO price suggests a market cap for Alibaba at $168 billion, larger than Amazon at $150 billion which has a forward 12-month P/E of 356. Compared to Chinese peers, Tencent’s forward P/E which is at 31 and Baidu’s P/E at 32.

This suggests Alibaba is focussed on pulling off a success listing and is being careful not to overprice its IPO as might turn off investors.

There is also the optimism reflected by the grey market so far, where expectations are pricing in for the stock to close higher by around 30% on its trading debut. On IG’s Alibaba IPO grey market offering in the UK, investors have been bidding up the expected opening price over the past six months. It currently sits at around $90 per share, up from $64 in March.  

Good for Alibaba, bad for Amazon?

As momentum builds up from investor interest, it will not be a surprise to see prices edging up as fund managers start to add Alibaba to their portfolios for the China e-commerce market exposure.

This scenario could mean other Internet-related stocks will be sold off to reallocate capital for Alibaba. One of the likely holdings to be partially substituted will be Amazon due to some of their similarities.

This makes Amazon an interesting stock to watch amid Alibaba’s listing. Will we see pressure on the stock price in the short term? Traders can watch out for the stock to test its 100 DMA and recent support level of $320. A clear break below will be an indicator of bearish momentum and likely see it test the next support at around $305.

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