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China Stock Research

About the Author China Stock Research

Several years experience as an analyst in the hedge fund world. Investment knowledge includes long/short equities, credit, macro, arbitrage, distressed debt, and special situations. Previous research publication experience includes Japanese small cap research distributed to institutional investors. Education credentials include BS in Computer Science, MBA in Finance, and CFA Charter. Follow on Twitter @ChinaStockRsrch Follow on StockTwits @ChinaStockResearch

Alibaba: Class Action Lawsuit A Distraction


News Friday that a class action lawsuit has been filed against Alibaba (NYSE:BABA) doesn’t really come as much of a surprise. Given the alarming allegations broached in the SAIC white paper conveniently published before the company reported quarterly results late last month, it was a foregone conclusion. Irrespective of the merits of what exactly the suit alleges, Alibaba presents too much of a tasty target for lawyers working on contingency to pass up.

We reiterate our earlier opinion of the whole affair – it doesn’t matter. Our guess is that the end result will bear a remarkable resemblance to another IPO that was set on by fee-hungry lawyers, LightInTheBox (NYSE:LITB). Remember that one? The stock rocketed up after the IPO but cratered after reporting its first quarter as a public company. Who knew what and when the focus after it looked like pre-IPO revenue growth was facing some headwinds while the company was on the pre-IPO catwalk trying to attract investors. Sound familiar?

The end result of the LITB class action suit was unremarkable: the company settled for a paltry 1.5 million USD, and it took about a year. Securities lawyers don’t come cheap, so our guess is that the real winners were the guys that went to law school, not shareholders.

So it seems like Alibaba shareholders can look forward to some of the same treatment. There will likely be some small degree of uncertainty around the stock for a while as this plays out, and then ultimately… a small settlement.

We note that there are bigger issues to worry about for the Alibaba faithful, namely adjusting to the reality that monetizing the mobile business will take a bit more than the flip of a switch.

Keeping “what’s important” in perspective is key for investors trying to filter useful information from time-wasting noise. And for Alibaba, this lawsuit isn’t a significant factor for the company’s longer-term prospects – don’t let it be a distraction.