Investors tap into riches of China
Alibaba’s record of earnings generates hope but Chinese stocks in general have not inspired confidence
Alibaba climbed nearly 40 per cent in a mammoth IPO on Saturday (NZ time) that offered eager investors seemingly unlimited growth potential and a way to tap into the burgeoning Chinese middle class.
The sharp demand for shares sent the market value of the e-commerce giant soaring well beyond that of Amazon, eBay and even Facebook.
The initial public offering was on track to be the world’s largest, with the possibility of raising as much as US$25 billion.
Jubilant chief executive Jack Ma stood on the floor of the New York Stock Exchange as eight Alibaba customers, including an American cherry farmer and a Chinese Olympian, rang the opening bell.
“We want to be bigger than WalMart,” Ma told CNBC. “We hope in 15 years, people say this is a company like Microsoft, IBM, Wal-Mart. They changed, shaped the world.”
The company’s online ecosystem stands apart from most e-commerce rivals because it does not sell anything directly, preferring to connect individuals and small businesses. It enjoyed a surge in US popularity over the past two weeks as executives made sales pitches based on Alibaba’s strong revenue and big ambitions.
“There are very few companies that are this big, grow this fast and are this profitable,” Wedbush analyst Gil Luria said.
Trading under the ticker “BABA”, shares opened at US$92.70 and hit nearly US$100 ($123) within hours. By the end of the day, the stock rose US$25.89, or 38 per cent, to close at US$93.89.
Some Institutional investors, such as banks or hedge funds, were able to buy the stock at US$68 a share, the amount set on Friday. Most other investors had to wait until shares started trading publicly, which meant paying a much higher price after adjustments for demand.
Alibaba’s Taobao, TMall and other platforms account for some 80 per cent of Chinese online commerce.
Most of the company’s 279 million active buyers visit the sites at least once a month on smartphones and other mobile devices, adding to the stock’s attractiveness as online shopping shifts away from laptop and desktop machines.
Online spending by Chinese shoppers is forecast to triple from its 2011 size by 2015. Beyond that, Alibaba has said it plans to expand into emerging markets and, eventually, into Europe and the US. The company does not compete with its merchants or hold inventory, serving instead as a conduit that links buyers and sellers of all kinds.
“The business model is really interesting. It’s not just an eBay. It’s not an Amazon. It’s not a Paypal. It’s all of that and much more,” said Reena Aggarwal, a professor at Georgetown.
Yet the track record for Chinese stocks in general does not inspire confidence. Over the past two decades, they have earned a reputation for burning investors in both the US and China. Many of those that do post gains fail to keep pace with inflation. Returns have been depressed by a range of factors, including fraud allegations, questionable accounting and cumbersome regulations.
Analysts say the US$90-plus price range is a fair valuation for the shares, but one fund manager suggested that the price might not stay that high.
That price “might be at least for the moment the higher end of the trading range as investors get comfortable with the company”, said Kathleen Smith, IPO exchange-traded fund manager at IPO research firm Renaissance Capital.
Alibaba’s revenue from the quarter ending in June surged 46 per cent from last year to US$2.54 billion. Its earnings climbed 60 per cent to nearly US$1.2 billion, after subtracting a one-time gain and certain other items.
In its last fiscal year ending March 31, Alibaba earned US$3.7 billion, making it more profitable than eBay and Amazon combined.
Based in Ma’s hometown of Hangzhou in eastern China, Alibaba began in 1999 when Ma and 17 friends developed a fledgling e-commerce
It’s not just an eBay. It’s not an Amazon. It’s not a Paypal. It’s all of that and much more.
Reena Aggarwal
business on the cusp of the internet boom. Today, its main platforms are its original business-to-business service, Alibaba.com, consumer-toconsumer site Taobao and TMall, a place for brands to sell to consumers.
Saturday’s closing price gave the company a value of US$231.44 billion, compared with US$150 billion for Amazon and US$67 billion for eBay.
Alibaba offered 320.1 million shares for a total offering size of $21.77 billion. Underwriters have a 30-day option to buy up to 48 million more shares.
The IPO easily eclipsed the US$16 billion Facebook raised in 2012, the most for a technology IPO. If all of its underwriters’ options are exercised, it would also top the all-time IPO fundraising record of US$22.1 billion set by the Agricultural Bank of China in 2010.