The e-commerce behemoth Alibaba filed in the United States on Tuesday to sell stock to the public for the first time, in an embrace of the global capital markets that represents a coming of age for the booming Chinese Internet industry.
'Alibaba is the fastest-growing Internet company in one of the fastest-growing economies in the world,' said Sameet Sinha, an analyst with B. Riley & Company, a boutique investment bank in Los Angeles. 'They are like an Amazon, an eBay, and a PayPal.'
In the filing, Alibaba said it intended to raise $1 billion in an initial public offering - a figure used to calculate its registration fee. But the company is expected ultimately to raise $15 billion to $20 billion - which would make it the biggest American I.P.O. since Facebook 's $16 billion offering May 2012.
When it makes its debut on either the New York Stock Exchange or the Nasdaq market, Alibaba is also expected to have a share price that could value the company at roughly $200 billion - more than the market value of Facebook, Amazon.com or eBay, although still trailing that of Google or Apple.
Many investors may see Alibaba as their best chance yet to buy into China's enormous growth. Yet the offering will also shine a bright light on a company that is relatively unknown in the West and whose complex web of businesses and dealings may put off potential shareholders.
In China, Alibaba's brands are household names. It operates an online shopping center, Tmall, where global companies like Disney, Apple, L'Oréal, Nike and Procter & Gamble have set up virtual storefronts to sell products directly to Chinese shoppers. Another of its sites, Taobao, is aimed largely at small Chinese firms that want to sell items to Chinese consumers.
The company's digital payment affiliate, Alipay, not only handles transactions on its sites, but is also widely used as a mobile payment system on cellphones in China, much as credit cards are used in other countries. It handled $519 billion worth of payments last year.
Last year, the value of all merchandise sold on Alibaba exceeded $248 billion, more than the volume on eBay and Amazon combined. Nearly 20 percent of those purchases were made through mobile phones.
American companies like Google and eBay can only dream of making the kind of profit margin that Alibaba enjoys. Last year, Alibaba had net income of $3.56 billion on revenue of $7.95 billion. That translates into a profit margin of roughly 45 percent. In comparison, eBay mustered a 17.8 percent margin.
Alibaba has much higher profit margins than American Internet companies, analysts say, because its costs are low. It doesn't own the merchandise sold on its sites, making money instead from the merchants that pay a commission for access or buy ads to promote themselves. Alibaba also pays very little in taxes.
China Daily/Reuters
Wall Street has been eagerly awaiting an I.P.O., wanting to share in the company's stupendous growth. Alibaba reigns as one of China's top three Internet players, along with the search engine company Baidu and the media and gaming conglomerate Tencent, but is bigger and more profitable than those rivals.
Some investors have resorted to indirect routes to get a piece of Alibaba, like buying stock in Yahoo and Japan's Softbank, which both hold major stakes in the Chinese company.
When Yahoo first bought a 40 percent stake in 2005, it valued Alibaba at just $2.5 billion. Six years later, when a consortium of investors took another stake in Alibaba, they did so at a valuation of about $32 billion. Now, analysts estimate that Alibaba may be worth anywhere between $130 billion and $235 billion.
And it's not just the big money of Wall Street that looking to participate. The immense size of the offering means that Alibaba shares will probably find a home in a broad swath of mutual funds and pension funds - and thus indirectly in the portfolios of small investors around the world.
Shares aren't expected to begin publicly trading for several months, as the Securities and Exchange Commission reviews Alibaba's offering materials and the company holds a roadshow to promote its prospects to institutional investors.
That time frame increases the risk that investors will be less willing to take a chance on an expensive Internet stock, especially one with no public track record.
Technology stocks have fallen sharply in the last few weeks after an impressive run, with some analysts saying they are overvalued. At the same time, the market's appetite for I.P.O.'s has also cooled.
Alibaba amassed its multi-billion-dollar fortune a little at a time, shrewdly capitalizing on two trends - the rise of the Internet and China's growing prosperity.
In its prospectus, Alibaba emphasized that it plans to concentrate on the Chinese market, one whose potential it believes hasn't been fully tapped. It cited statistics showing that only about 45.8 percent of the country's population used the Internet, significantly lower than in the United States and Japan. And only about 49 percent of customers in the country shopped online.
The offering is being led by six banks: Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Citigroup.
SoftBank, the Japanese telecom giant, is Alibaba's biggest investor with a 34.4 percent stake. Mr. Ma is the biggest individual shareholder, owning 8.9 percent of the stock; he is followed by his longtime lieutenant, Joseph C. Tsai, who owns 3.6 percent.
Posted by Unknown on Tuesday, May 6, 2014 - Rating: 4.5
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