Shares in China's leading e-commerce firm Alibaba.com slid 6 percent on Monday after Microsoft dropped a bid for Yahoo, Alibaba's key investor.
Yahoo owns 39 percent of Alibaba's parent, Alibaba Group, and Microsoft's failure to win Yahoo means potential business opportunities Alibaba might have had with Microsoft, such as in advertising or online trading, would not now likely materialise.
"The stock fall was largely expected as Microsoft dropped its bid for Yahoo, and there will be no news for Alibaba in the short term," said Antony Mak, sales director at DBS Vickers.
Shares in Alibaba, due to post quarterly earnings on Tuesday, closed down 5.9 percent at HK$15.24, their biggest drop in four weeks, underperforming the Hang Seng Index (.HSI), which eased 0.22 percent.
"This is a highly volatile stock, and is driven by sentiment," said Francis Cheung, analyst at CLSA.
"The news may have affected sentiment but has very little to do with what the company can do in terms of earnings." Some analysts said the withdrawal of Microsoft's $33 per share bid for Yahoo would help remove some uncertainty as Alibaba Group had been touted as seeking investors to buy Yahoo's stake in a move to stop Microsoft getting access to Alibaba stock.
"The news is not so negative, but obviously investors are using this as an excuse to sell after a sharp rally last week," said Linus Yip, strategist at First Shanghai Securities Ltd.
Alibaba shares had jumped 12.5 percent to a 4-week high on Friday amid talk that Microsoft, the world's biggest software maker, may raise its Yahoo bid.
But Microsoft gave up the chase on Saturday after failing to meet Yahoo's $47.5 billion price tag.
Alibaba declined to comment on Microsoft's decision.
"This is an issue for our parent company only.
Three months ago when this issue was first raised, we didn't have any comment, and we don't have any comment now," CEO David Wei told reporters after a shareholder meeting in Hong Kong on Monday.
Alibaba shares, listed in Hong Kong in November and ranked as the city's most popular IPO last year, have slumped 45 percent this year amid a global share sell-off, underperforming a 5.9 percent fall on the blue chip Hang Seng.
The stock, which trades at 58 times forecast earnings, nearly tripled on its debut from an IPO price of HK$13.50 that had valued the company at more than 106 times forecast earnings.
The company is expected to report a strong first quarter net profit of 263-290 million yuan ($37.6-$41.4 million) as margins improved, according to two analysts polled by Reuters.
It earned 295 million yuan for the first six months of 2007.
Concerns about Alibaba's premium membership growth and the impact of a firmer yuan and a slowing U.S. economy on its customer renewal rate, could continue to overhang the stock, analysts said.
"Alibaba mainly caters to external trade, and I think external trading is going to slow," Cheung said.
Alibaba, looking to serve small- to medium-sized businesses, shrugged off the threat of a a slowing global economy, saying this could instead be an opportunity for it and its customers.
"E-commerce helps small- and medium-sized companies to control costs, to source better and make better profits -- it could enable them to survive," Wei said.