As Alibaba Prepares To Go Public, Investors Wonder Where The Ceiling Is?
Alibaba is an eCommerce giant, though it’s largely unfamiliar to Americans. Founded in 1999 by former teacher Jack Ma and headed up by CEO Jonathan Lu, the site made an estimated $170 billion in sales in 2012. That gigantic number means the company made more money than eBay and Amazon combined.
Unsurprisingly, Alibaba is also among the most visited websites in the world, ranking 68 in web traffic according to web analytics provider Alexa Internet, Inc. Alibaba’s rivals still outrank it in terms of web traffic. Google ranks number one overall in the top 500 global sites list and Amazon, the parent company of Alexa places tenth overall. eBay places 26th.
Next month, the Hangzhou, China based company expects to carve itself an even bigger portion of the revenue pie by following a growing tech trend: going public. Alibaba executives surely hope this move captures the hearts, minds, and wallets of North American investors in September, when the stock offering is set to take place.
The New York Times reported that Alibaba’s IPO “is expected to begin trading in September at a market value of perhaps $200 billion,” which would make it one of the largest debuts in history. Other reports dispute that high a number.
Investor Place’s Jeff Reeves is a BABA (Alibaba’s Stock Exchange Abbreviation) disciple as well, but expects the IPO to pull in a more tempered, but still gargantuan $130 billion. However, Reeves also issued a warning to traders expecting a big payday in that not all IPO’s go smoothly.
“I’m not saying that Alibaba will crash and burn; IPOs are driven largely by sentiment, and it seems hard to extrapolate anything other than enthusiasm about BABA stock given the all the awed and breathless news about its scale and growth lately.”
Take the case of social network leader Facebook. Its IPO attracted a storm of media attention before bellying-up. After pricing its shares at $38, the shares dropped down to $19.00 according to NASDAQ data. There was even a scandal surrounding the IPO involving Morgan Stanley and other prominent IPO underwriters. However, a rebound followed and Facebook shares are trading in the $70 dollar range today.
In anticipation of next month’s private-to-public stock offering, Alibaba has been making a series of investments in a wide variety of non-competing technology offerings. These investments include stakes in sports memorabilia retailer Fanatics and video game developer Kabam.
Per The New York Times, internet analyst Sameet Sinha of Los Angeles, CA-based investment firm B. Riley & Company links these acquisitions to the impending IPO.
“With investments like these, they get good products, they make a splash, and most importantly, they build connections and trust amongst the venture capitalists.”
Other companies like Yahoo are reversing that trend and investing in Alibaba itself. As a large shareholder in the company (somewhere in the 20-25 percent range), Yahoo stands to make bookoo bucks when BABA’s initial public offering comes out next month.
Furthermore, Yahoo’s initial $1 billion investment in 2004 is now worth 26 times that amount. The value of Alibaba has even lifted Yahoo’s mediocre earnings thanks to its surging overseas business due to a report published by The Washington Post.
“To put that in perspective, that’s larger than Yahoo’s current market cap,” which is about $33 billion, says PrivCO financial analyst Matthew Turlip. “So, Yahoo’s 23 percent ownership is worth more than the total value of Yahoo’s stock in the market right now.”
So how does Alibaba stack up to U.S. based rivals eBay and Amazon? Check the site out for yourself and find out.
[Photo courtesy of Bloomberg]
