Is Jack Ma's Alibaba Pictures Really Worth $10 Billion?

Only 12 months after it began operations, and before the company has made even a single movie, Alibaba Pictures Group has seen the value of its publicly traded shares climb more than seven-fold to reach a $9.6 billion market cap on the Hong Kong stock exchange.

The company is the majority-owned film division of Alibaba billionaire Jack Ma, who has done a superb job of driving up the stock price by announcing flashy moves like his hiring of former China Film Group exec Zhang Qiang as CEO, and a $400 million investment from his celebrity actress pal Zhao Wei.

Ma, a film industry novice, got into the business back in June, 2014 when he acquired a 61 percent stake in a money losing movie operation, then called ChinaVision, at a valuation of $10.4 billion Hong Kong dollars (USD 1.3 billion).

During the next 12 months Ma generated an additional $8 billion in market cap for the company mainly on the strength of his name as a shrewd entrepreneur, and perceptions of the market clout his $200+ billion business empire can bestow on a new Chinese media company. This past April Alibaba Pictures' stock spiked when its parent Alibaba Group announced it was planning to fold its online movie-ticketing business into the film unit.

But with no earnings and only a handful of future films in the pipeline, the stock is priced purely on speculation about its future prospects. Even in the Chinese media sector, where leading companies are trading at P/E multiples of 60 and higher, Alibaba is a pricy anomaly. Major U.S. companies' media stocks, by comparison, tend to trade at between 15 and 30 times earnings.

The share price momentum and ballooning market cap has put enormous pressure to deliver on Alibaba Pictures’ executives. A source who is close to the company has said that the staff’s story development and production executives are scrambling to find and execute projects that will justify their lofty valuation.

Adding to that pressure is last Thursday's announcement that the company will sell up to an additional 12.18 billion Hong Kong dollars (US$1.57 billion) in shares to raise funding for potential acquisitions in the media industry. It’s going to take a string of blockbuster hits for Ma’s movie team to warrant those kinds of numbers.

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