In Depth

Alibaba's Eye-Popping IPO

It’s official! Chinese e-commerce juggernaut Alibaba has filed for a U.S. IPO, and by all analyst predictions it is going to be a monster. With the filing comes many answers about what the companies annual revenue, market capitalization and market share are. However, the new filing also trails many questions in its wake as well. Will this be the largest IPO in history? If not, will Alibaba supplant Facebook as the largest tech IPO? Are American investors ready to bet on the Chinese economy? And where will Alipay, the company’s PayPal-like payment arm, fit into this whole deal?

The wait is over - Alibaba has officially filed for an IPO with the securities and exchange commission (SEC). The Chinese e-commerce juggernaut’s IPO is expected to be one of the largest, if not the largest, public offerings in history. Analysts are projecting the the IPO will raise between $15-$20 billion. To be the largest filing in history, Alibaba would have to beat Visa’s 2008 record from its IPO- $19.7 billion reports Reuters. And according to the Wall Street Journal today, analysts estimate that the market may place a value on Alibaba of between $136 billion and $250 billion making it worth as much as Amazon at the low end and more than Amazon and eBay combined at the high end.

The 343 pages filing documents also provides a window into Alibaba’s finances that heretofore had been unavailable save through glimpses seen in Yahoo!’s quarterly financial reports. Yahoo! Own 24% of Alibaba presently.

According to yesterday’s SEC filing, the company reportedly valued itself internally at between $96.9 billion and $121 billion as recently as last month and estimates its share price as being between $40 and $50. During the year that ended in March 2014, the company reports revenues of $5.6 billion with profits estimated at $1.4 billion during that time period. Alibaba completely dominates the Chinese e-commerce market, with 80 percent of transactions divided over its three main marketplaces – it’s flagship site, and online market places Taobao, its and luxury brand-centered Tmall.

“It’s the biggest e-commerce growth story in the world,” Eugene Munster, an equity research analyst at Piper Jaffray, told the Washington Post. “That’s why investors are so excited to get involved.”

Alibaba’s Major Growth Spurt

The recent SEC filing for a U.S. IPO is just the latest in a string pushes toward expansion made by Alibaba in early 2014. The company has spent $3.8 billion in acquisitions and investments since 2013, $2.2 billion of which have been made since January of this year.

Notable investments within China include $700 million in Intime Retail Group Co., a Beijing-based chain of department and grocery stores. Alibaba also has also agreed to purchase AutoNavi Holdings Ltd., China’s most popular mobile mapping service for $761 million; and a majority stake in a Chinese film production company for over $800 million.

Alibaba’s investments, however, do not stop at China’s borders. The company was also a major investor in San Francisco- based ride-sharing service Lyft’s most recent $250 million funding round. That investment is part of the nearly $1 billion Alibaba has poured into US venture capital investments since 2013. Other notable investments include over $200 million to U.S. based Amazon competitor ShopRunner and $15 million in ecommerce luxury retailer 1st Dibs.

Moreover, the world is becoming more integrated with Alibaba. The company recently inked a deal with Burberry to sell their luxury goods in upscale TMall marketplace. Consumers can also pay with Alipay—the PayPal-like payments wing of Alibaba- on small but growing number of U.S. sites including Gap, Travelzoo and GoDaddy.

Cause For Hometeam Concern?

To say Alibaba is a formidable force on the world stage would be an understatement on par with “the sun is warm.”

The total value of transactions on Alibaba’s websites last year was $248 billion- more than Amazon and eBay combined. Further, the company’s profit margins during that time period was 48 percent, higher than Amazon, Google or Facebook. Alibaba’s revenues are also growing faster, 57 percent in the first nine months of its 2013 fiscal year. At current estimates for the value of its IPO, it will likely surpass Facebook as the largest tech IPO in history—Facebook took home about $16 billion in its IPO.

Remaining Questions

However, there are still questions to be answered in advance of the IPO as final valuations are being determined.

One of the main areas for questions center on the future fate of Alipay. 78.6 percent of Alibaba’s gross merchandise volume is purchased through Alipay—valued at about $520 billion. Alipay was spun off from the rest Alibaba in 2011 to skirt regulatory issues with China’s central bank, though there has been recent talk of re-integrating it into the Alibaba fold pre-IPO. Notably, this means that the massive valuation of Alibaba above do not include the very successful and profitable Alipay operation.

Yesterday’s filing revealed that that draft regulations by the People’s Bank of China (PBOC) currently under consideration would cap the amount that a buyer could spend on Alipay at around $800 for a single transaction or at about $1,600 per month in aggregate. The regulations would also limit transfers of money using Alipay to around $160 per transaction and $1,600 per year, which would severely impact consumers ability to invest in the Alipay-controlled money-market fund Yu’e Bao, which is currently the world’s fourth largest money-market fund.

What’s clear is that the future of Alibaba and Alipay will go hand in hand. No doubt executives at Amazon, eBay, PayPal, Facebook, Google, and others are reading the Alibaba IPO documents and reacting with a mixture of awe and dread.




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