Alibaba’s IPO mat­ters even more than you thought

Financial Mirror (Cyprus) - - FRONT PAGE -

It could very well be the big­gest stock-mar­ket de­but in his­tory. The long-awaited Alibaba ini­tial pub­lic of­fer­ing will take place this month, which will put the Chi­nese ecom­merce gi­ant on a par with Ama­zon overnight and make it one of the largest listed firms in the U.S.

Here’s why it’s im­por­tant - even if you are not di­rectly in­vested.

Firstly, Alibaba’s IPO likely marks just the be­gin­ning of its in­ter­na­tional ac­cel­er­a­tion. Although a num­ber of Chi­nese on­line firms like VIP­Shop and Baidu are pub­licly listed in the U.S. and still fo­cus on business in China, Alibaba will prob­a­bly seek to ex­pand its reach. Its re­cent part­ner­ship with the Sin­ga­pore Post cer­tainly hints at this. Not only will mar­ket­ing beyond China’s bor­ders al­low it to grow its op­er­a­tions, but it will also en­able the firm to ac­quire new tech­nolo­gies and re­main com­pet­i­tive both in the Chi­nese mar­ket and abroad.

Alibaba’s Chair­man, Jack Ma, is am­bi­tious, and it isn’t beyond the scope of pos­si­bil­ity that he may look to pur­chase the likes of Ebay or Paypal. The company’s growth could im­pact neg­a­tively on mar­ket ri­vals. Although it is new to the global mar­kets, it boasts a for­mi­da­ble cur­rent business model. While Ama­zon merely broke even in the sec­ond quar­ter, Alibaba gen­er­ated 43% profit mar­gins.

Se­condly, Alibaba is not a lone op­er­a­tor in the world of tech stocks: Ya­hoo owns a 22.5% stake in the firm. De­spite their dis­play ads gen­er­at­ing poor rev­enues, Ya­hoo’s stock price has jumped 28% in the last year largely thanks to in­vestors’ de­sire for a piece of the Alibaba puz­zle. Ya­hoo has stated that it will keep around half of its shares, with the hope that they will ap­pre­ci­ate, and will sell the other half. It will ap­pease share­hold­ers by pay­ing them about half of the cash raised, post-taxes, as div­i­dends, and pre­sum­ably will strate­gi­cally use the rest of the gen­er­ated funds. Fol­low­ing the pur­chase of Tum­blr for $1.1 bln last year, an­a­lysts spec­u­late that CEO Mayer may be plan­ning fur­ther ac­qui­si­tions in the mo­bile or so­cial space to en­able the firm to com­pete more ef­fec­tively against its on­line ri­vals.

There’s a third and sig­nif­i­cant rea­son why this IPO is a game changer. After much con­jec­ture, Alibaba re­vealed on Fri­day that the price per share will be around $60 to $66, es­tab­lish­ing the company’s value at ap­prox­i­mately $155 bln. That matches the lower end of an­a­lysts’ es­ti­mates of the company’s value. Alibaba seems to be look­ing to en­tice longterm in­vestors but may very well raise the price of shares at a later date. This is a les­son learnt from Face­book’s IPO where the ag­gres­sive pric­ing proved to be a mis­cal­cu­la­tion. Stock price dropped after float­ing and took a good year to re­cover. If this IPO proves suc­cess­ful and Alibaba achieves the cor­rect bal­ance be­tween rais­ing funds and keep­ing its share­hold­ers happy, it will set a strate­gic prece­dent.

Most sig­nif­i­cantly of all, when ‘BABA’ shares be­gin trad­ing on the New York Stock Ex­change, not only stock traders will be watch­ing. Alibaba is dom­i­nat­ing head­lines not sim­ply be­cause of the es­ti­mated value, but be­cause in­vestors, busi­nesses and politi­cians see this huge IPO as a re­flec­tion of China’s su­per­power sta­tus and in­creas­ing en­gage­ment with the global fi­nan­cial and cor­po­rate world. This could open the way for greater co­op­er­a­tion and fur­ther deals be­tween China and Amer­ica. And that, my friends, would make his­tory.

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