May 6, 2016 ยท 5 minutes

In a way, it might have been better if Alibaba had been a gigantic tech unicorn that just happened to wait until early 2016 to go public.

For one thing, it could have been just the jumpstart the tech IPO needs. And for Alibaba, early 2016 just may be when the company proves ready for prime time, at least for its investors.

As it was, Alibaba went public a year and a half ago, raising $25 billion in the largest tech IPO ever. Back then, that headline in itself was nice, but it also marked the beginning of the drought for tech IPOs, which dried up in 2015 and are pretty much AWOL in 2016 so far. Alibaba's stock listed at $68 a share, rose as high as $120 a share in a matter of weeks, then fell as low as $57 a share in the following year.

That is the sadly typical trajectory of most tech IPOs: The typical pop on the first day, thanks to your underwriters. If you're any good, count on a few more weeks or even months of gains. Then, six to nine months after your IPO, brace for the typical downfall. And don't look to underwriters for help. They, typically, have moved on to newer IPO candidates.

Alibaba should have risen above this tired, tawdry narrative. It not only controls about 80 percent of China's online-retail market, it almost singlehandedly created that market. It didn't, like Amazon, disrupt the sleepy old guard of bricks and mortars, it built a market where none had existed before. Wherever Alibaba couldn't accomplish that task by itself, it took minority interests in myriad companies, giving them capital to help achieve Alibaba's big hairy audacious vision.

There are two reasons why Alibaba's stock has instead lagged. First, Chinese stocks have plunged since last summer (the Shanghai Composite is down 42 percent in 11 months), leading to concerns about China's overall economy. Economists debate about whether China will have a hard landing or a soft landing. In everyday terms, this is like seeing James Bond on a collapsing roof and debating whether he will land on a couch.

Alibaba has been saying it will land on the couch.

This is why Alibaba's earnings report Thursday was interesting. Why, yes, there may in fact be a couch in the rubble after all. Commercial loans and building construction might be falling through the proverbial floor, but Alibaba's insistence that the Chinese consumer is a kind of magical, soft cushion for its business may have some practical, hard evidence. (At least, if we can trust Alibaba – about which, see below.)

Alibaba said Chinese consumers pushed its revenue growth rate up to 39 percent last quarter, its highest growth rate in the past four quarters. That in a period when China's overall economic growth slowed to 6.7 percent, its worst performance since the global financial crisis of 2009. 

Alibaba is also building a mobile business quickly. Its mobile active users rose 42 percent to 410 million (Amazon doesn't disclose this but by some estimates its total MAU stands at 304 million). Alibaba said mobile revenue more than doubled to $8 billion and that mobile made up 73 percent of its exchanges this quarter, up from 51 percent a year ago.

Of course, this is a familiar story to tech investors. Alibaba is scaling in mobile as fast as Facebook did. But unlike Facebook, Alibaba is an ecommerce giant like Amazon. And like Amazon, it's come to dominate its domestic market in online retail. And like Amazon, the company says it will keep spending to expand its presence abroad while strengthening its monopoly at home.

In Amazon's core North American market, however, the consumer has been reeling for years from the financial crisis. In Alibaba's core market, the consumer is both benefiting from and suffering from the over-investment in non-consumer areas like construction and infrastructure. In both, the consumer is the best hope for economic growth. And from that perspective, China, where the middle class is rising rather than falling, is the better bet.

The second reason is one that Alibaba has much more control over. As we've pointed out a couple of times, Alibaba is to financial transparency what San Francisco is to blue skies before noon. It's clear only when it feels like it. There's Alibaba's opaque corporate structure. And the way founder Jack Ma spun off Alipay (by far the most lucrative asset in its investment portfolio) rankled many overseas investors.

Alibaba is highly unlikely to reshape its corporate structure to please US investors, or even disclose metrics that get into the nitty gritty of the business it's built. Outsiders may take comfort from news that Ant Financial, Alipay's current owner, may seek an IPO in Shanghai as early as this year.

Alipay is valued at $60 billion (to Paypal's $47 billion), according to Alibaba, and has 423 million active users (Paypal, 184 million). An IPO by Alipay's holding company could dispel some of the transparency concerns that have weighed on Alibaba's share price. Had Alipay gone public before Alibaba, Alibaba investors might not be so nervous.

Alibaba hasn't proven its naysayers wrong, but it's starting to offer evidence to make them doubt themselves. Alibaba's news this week wasn't great, in fact it was a pretty mediocre report. For better or worse its takeaway is, hey, China's middle class is holding strong, even if its industrial policy is crumbling. 

That was enough to pull Alibaba's stock up 4 percent Thursday. And, strangely, it was enough to pull up Yahoo 2 percent, a reminder that Yahoo's interminable death rattle hasn't distracted its valuation from its true purpose: a hedge fund whose primary asset is Alibaba. 

In a larger and more meaningful sense, Alibaba, we hear over and over, is a proxy for China's consumer spending. Until it isn't. Just as we've been hearing Yahoo is a proxy for Alibaba's performance. Until it isn't. The global investor, wondering if China can survive its construction excesses, looks to China's rising middle class. All it can see is Alibaba in the fog. Or worse, Yahoo in the debris of Alibaba's fog.