U.S. investors may win with Alibaba’s IPO
Alibaba’s plans to file an initial public offering with the New York Stock Exchange could be a big win for U.S. tech investors — at least for those who can get their shares at or near the eventual IPO price.
Plans by the Chinese e-commerce giant to sell shares here — and not nearer its home market in the Asian financial capital of Hong Kong — will give Americans a shot at betting on future profits in the fast-growing Internet sector of the world’s most-populous country.
While Alibaba has never publicly disclosed financial statements, numbers reported last summer by Yahoo — which owns a 24% stake in the upstart — showed its sales for the quarter ended in March of last year had soared 71%, to $1.38 billion.
Alibaba’s business is similar to parts of both Amazon.com and eBay, as the Chinese Internet giant sells directly to online consumers but also allows business owners to open Web stores.
As with its U.S. counterparts, Alibaba merchants sell everything from clothes to shoes to housewares.
Amazon is expected by Wall Street analysts to report revenue growth of 20% this year, to $90 billion, while eBay sales are expected to rise 14%, to $21 billion.
Tech investors have embraced Amazon shares despite that com- pany’s single-digit operating profit margin, with the stock rising five-fold in the last five years and more than doubling in the last three years.
What Alibaba’s long-term sales and profit growth trajectories will be today is known only by the partnership that controls it.
That governance structure, which led Alibaba to spurn Hong Kong after that venerable stock exchange insisted it be changed, is nevertheless similar in effect to those used by Google, Facebook and other large tech firms.
Namely, to ensure that founders and insiders always keep control of the company’s board of directors, in case corporate raiders such as Carl Icahn come along.
While dual-share structures and super-voting shares make public shareholder-advocates nervous, it hasn’t stopped tech investors from bidding up Facebook shares since its May 2012 IPO.
As we reported here last week, Facebook has cracked the Top 5 tech firms in valuation less than two years after going public, and is now valued at more than $180 billion.
Alibaba rivals Amazon and eBay, meanwhile, have market valuations of $170 billion and $75 billion, respectively, putting them at No. 7 and No. 11 on the list of most valuable tech firms.
Shares of other fast-growing Internet stocks, including Twitter, also have been snapped up by U.S. investors since their public debuts.
Yet still others, including Zynga and Groupon, have done little for their IPO investors, and have punished retail investors who got in near the top on those stocks.
The main difference between the two groups, of course, is that Facebook and LinkedIn are profitable by long-established finan- cial measures, while Zynga and Groupon relied on metrics reminiscent of the dot-com era.
If Alibaba is either already profitable or can demonstrate to Wall Street that its business model can produce sustained profit growth, the company will likely to come to market valued among the Top 5 or 10 U.S.-listed tech companies.