FXstreet

Alibaba.com tumbled 8.8% Thursday, a day after Yahoo finally answered investor chirping by announcing it will spin off its remaining stake in the Chinese e-commerce giant to shareholders. Are we looking at a case of be careful what you wish for?

The assumption held by those clamoring for Yahoo to spin off the Alibaba stake has been that fast-growing Alibaba basically accounts for the entire current value of Yahoo stock, and divesting it in a tax-free manner is the best way to deliver all of that value to shareholders.

No arguments on that front here, especially after Yahoo basically admitted — at least in terms of the importance of avoiding taxes on the position — with Wednesday’s move. However, it is entirely possible that the Alibaba stake may not keep increasing in value as rapidly as most investors seem to be assuming.

“Honeymoon Period Ends,” Stifel Nicolaus analysts headlined their Thursday recap of Alibaba’s quarterly results, which disappointed Wall Street and prompted the stock selloff. Of perhaps even more concern was Wednesday’s release of a white paper from an arm of the Chinese government taking Alibaba’s Taobao marketplace to task for failing to control counterfeit products being sold on its platform.

Alibaba fired back — Vice Chairman Joseph Tsai said the white paper was based on “flawed methodology” and the company will file a complaint — but the situation raises concerns about the company’s relationship with the Chinese government and the potential impact if it takes a turn for the worse.

Thursday’s earnings report showed net income fell to $965 million in the quarter, down 28% from a year earlier. Revenue grew 40%, certainly solid given the slower pace of the Chinese economy but still short of the Street’s lofty expectations. At the very least, the results blunted the initial enthusiasm for the plan that will put Yahoo’s stake in Alibaba in investors’ hands.

The financial results included a shortfall in both revenue and monetization rates stemming from the core Chinese retail business, Stifel wrote, a troubling development considered the widely-held expectations that Alibaba’s command of the Chinese market all-but-guarantees its growth rates will remain attractive.

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