China’s Alibaba on journey to make IPO history

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br IPO Jack Ma (41770538)

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Jack Ma, the chairman of China's largest e-commerce firm Alibaba Group, expects 30 percent of China's total retail sales to be conducted online in five years' time. Some analysts believe Alibaba's rapid pace of growth may be unsustainable. Photo: AP

Alexei Oreskovic and Deepa Seetharaman San Francisco

Alibaba gave investors a closer look at the scale and growth of the Chinese e-commerce juggernaut in an initial public offering (IPO) prospectus filed on Tuesday, the first step in what could be the largest technology debut in history.

Alibaba, which powers 80 percent of all online commerce in the world’s second-largest economy, is expected to raise more than $15 billion (R158bn), and could top the $16bn pulled in by Facebook when it listed in 2012.

The bulk of the proceeds will go to Yahoo – which bought a 40 percent stake in Alibaba in 2005 for $1bn and which must sell more than a third of its current 22.6 percent stake through the IPO. Alibaba also plans to sell new shares, people familiar with the plans have said, to bulk up a cash war chest depleted by a rash of recent acquisitions.

While the Alibaba brand is less well known in the US than internet companies such as Amazon.com and Facebook, the Chinese company’s listing has stirred the most excitement in Silicon Valley and Wall Street since Facebook’s record IPO. Alibaba will become the largest Chinese corporation to list in the US – on either the New York Stock Exchange or the Nasdaq.

Alibaba will debut later this year in a market where high-flying tech stocks like Twitter and Amazon have fallen in recent weeks in a sell-off that has divided analysts and investors, reviving doubts about soaring tech valuations.

Still, estimates of Alibaba’s market value have soared in recent months, to even beyond $200bn, underscoring Wall Street’s eagerness to take a crack at a massive Chinese company with robust growth.

Alibaba handled more than 1.5 trillion yuan (R2.6 trillion) of transactions for 231 million active users across its three main Chinese online marketplaces last year, more than Amazon and eBay combined. It did so with 20 884 full-time workers, fewer than eBay.

“If it’s able to transport that kind of power to outside China, it has the potential to become a true global e-commerce powerhouse,” Roger Entner, the lead analyst and founder of Recon Analytics, said. “Everybody thought Amazon could do it, but now we have to rethink Amazon in the light of being the most successful company in that field in the US – but not in the world.”

Alibaba did not give any hints in its IPO prospectus about potential plans for the US market. Analysts said it was unlikely Alibaba would adopt the model favoured by Amazon, which sells goods directly to consumers using a sprawling network of warehouses.

Alibaba, founded 15 years ago in a one-room apartment in Hangzhou and controlled by a 28-member partnership, boasts of building a company that will last “at least 102 years”.

After the IPO, Alibaba said, the partnership would have the exclusive right to nominate a simple majority of the members of its board of directors.

Alibaba operates an online messaging service, as well as a cloud computing business, but more than 80 percent of its revenue comes from its Taobao, Tmall and Juhuasuan online marketplaces. Top items sold on Taobao included prepaid phone and game cards, as well as lottery tickets, home furniture and baby products.

Some analysts say Alibaba’s rapid pace of revenue growth may be unsustainable.

“They got into the e-commerce space when there weren’t any other players in China,” Forrester analyst Kelland Willis said, adding Alibaba had been “losing market share year over year”. – Reuters


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