Alibaba IPO and the U.S. Market

Sep 15, 2014 By Lee Ways

Is the U.S. E-Commerce Vulnerable to the Alibaba Wave?

I have been following Alibaba IPO development in the online retailing market for quite sometime now. From AliFest event in Hangzhou, China, where Jack Ma addressed adoring fans and buyer/sellers at its various online marketplaces, to events in New York where Alibaba intends to get listed.

Alibaba’s IPO may turn out to be the biggest ever primary offering in world’s history. Extensive media coverage pushed for this possibility, exposing Alibaba to countless Western business executives, previously not acquainted with the Chinese company.

Don Davis projects that China’s dominant e-commerce company load its coffers with about $8 billion following its planned IPO. Lots of speculations remain as to what its innovative chairman Jack Ma will do with that money, including those that the company raise through its subsidiaries or profits outside China in the coming years.

The proceeds from this IPO are likely to be banked in a Western bank account. Alibaba is registered in the Cayman Islands and had put it expressly that it has no intention of getting the money back to China, nor does it really need to while it rakes in $5 billion profits a year in China.

The U.S. Market and Competition

Jack Ma jumped on the opportunity to reap from free listing; not charge to list and no commission on sales. He adopted the free business model and drew millions on entrepreneurs to Taobao. Shoppers and merchants flocked Taobao alike, then Ma started charging merchants for ads that lifted their profiles above the din of 8 million outlets competing the marketplace. Alibaba began getting rich from advertisements.

Jack Ma and Alibaba carry an illustrious story that has found ways into numerous publications. It will surprise many that Alibaba does more online sales worldwide than eBay and Amazon combined.

You may be compelled to wonder if Alibaba will try to take on eBay and Amazon on their home turf. For a start, it’s a yes as the company has already established its division in the U.S. market. However, the success of this division will be determined by a host of factors.

The U.S. online market is much advanced and has small room for growth compared to China. The latter can still absorb more players and this explains why eBay has been able to penetrate the online market in China by attempting the very business model it used in the U.S., which is charging retailers to list their products and taking a commission on sales.

Another thing, there is a question as to whether the U.S. consumers can accept Alibaba’s model now that it has set foot there. Its U.S. division, 11 main, does not offer similar return policy as its U.S. rivals. Nevertheless, this is a subject of another day.

11Main.com marketplace launched last June offers dramatically lower commissions but both eBay and Amazon could still match the price if need be. Actually, the U.S. market has seen many e-commerce debutants but they hardly make it. And even if Alibaba’s 11main is to make it, it is not just eBay and Amazon, but Best Buy, Macy’s, WalMart and many others are also clinching tighter on the web. Jack reckons that taking them head on wouldn’t be a smart strategy.

Alibaba IPO May not Spark as Expected

Jul 7, 2014 By Lee Ways

Country May be Alibaba IPO’s Greatest Hurdle

The stock markets await the grand entry of the Chinese ecommerce giant Alibaba Group Holdings Ltd, which is set to debut in the U.S. market perhaps in the second half of next month or later this year. However, a study by brokerage firm ConvergEx Group has revealed that most investors are tepid about acquiring stake in Jack Ma’s company.

Virtually every investor believes that the Chinese internet giant will definitely be a great buy, but not as many investors are committing to translate this statement into action. According to the survey, the success of the IPO will be determined by how the U.S. investors who have never subscribed to Chinese stocks will respond to the IPO. So what is the deal and why would it stand in the success of this IPO?

ConvergEx Group Survey about Alibaba IPO

Here is the summary of the survey:

Future Prospects of Alibaba

64% see ABABA as a good long-term (3-5 yrs) investment.
88% expects the stock to appreciate in value in the first month of its debut. 52% further believe the stock will gain at least 10% in that period. No one interviewed expected the price to stagnate, but 12% expected a decline in the first one month.

Investing in the Stock

Merely 43% are planning to buy ABABA when it begins trading.
Among the fund managers who hold Chinese stocks, 60% say they will buy the initial offering. 38% of fund managers who have never invested in Chinese stocks will also make their debut with ABABA.

While explaining the results of the survey, ConvergEx’s chief market strategist Nick Colas said that the tepid appetite for Alibaba stock, despite its obvious success, is not about the company, but rather about its country of origin.

It is obvious that the U.S. investors have their reasons against the Chinese stocks. So what has happened in the previous Chinese tech companies IPOs, and have the stocks fared well after their debuts?

Previous Debuts

According to Bloomberg data, the past 12 months has seen at least 16 Chinese companies go public in the U.S. stock markets. 12 of these companies operate internet related businesses. In average these companies have gained 44%. Here are a few examples:

Company	Description	IPO Month	IPO value	Gain/Loss
58.com Inc. (WUBA),	Online classifieds	October	$245.1 million	140%
Autohome Inc. (ATHM),	Car information website	December	$132.94 million	110%
Weibo Corp	Social media platform	April	$285.6 million	24%
JD.com Inc.	Online retail site	May	$1.78	42%

While the IPO market in the U.S. is generally at its best since the 2000 dot-com bubble, the Chinese internet companies have rewarded their investors with better returns than their U.S. peers, thanks to increasing consumption of ecommerce services in the world’s populous country.

Conclusion

Recently there was a red flag raised concerning the corporate structures of Chinese companies that pose potential risks to the U.S. investors. Perhaps this could be the cause for investor apathy for Alibaba’s upcoming IPO.

It is wise to be cautious, but missing out on Alibaba could be highly regrettable. The company already came clearabout the VIE structures used to bypass the Chinese foreign ownership legislation. So there is hope that all will be well, and so don’t worry much about the aftermath of the Alibaba IPO.

It’s NYSE:BABA for Alibaba IPO

Jun 28, 2014 By Lee Ways

NYSE Outfox Nasdaq in Pursuit for BABA IPO

Chinese ecommerce giant Alibaba Group Holding Ltd has chosen the New York Stock Exchange (NYSE) over Nasdaq OMX Group Inc. for its initial public offer (IPO), and will lists its shares under the ticker symbol “BABA”. The company revealed this in its amended filing on Thursday, setting another win for NYSE over Nasdaq.

Nasdaq is the home to a number of tech companies including Microsoft Corporation (NASDAQ: MSFT), Intel Corp (NASDAQ: INTC), Apple Inc. (NASDAQ: AAPL), Google (NASDAQ: GOOG) and Alibaba’s shareholder Yahoo! Inc. (NASDAQ: YHOO) However, NYSE is now emerging as the darling of many, having satisfactory handled LinkedIn Corp. (NYSE: LNKD), Pandora Media Inc. (NYSE:P) and Yelp Inc. (NYSE: YELP) debuts. According to data compiled by Bloomberg, by the year 2000 Nasdaq had hosted 243 tech companies’ debuts compared to NYSE’s five.

Why Alibaba Chose NYSE

The decision to list in the NYSE instead of Nasdaq stock market is probably as a result of how the latter handled Facebook Inc. ’s (NASDAQ:FB) IPO. Until now, Facebook IPO, which raised $16 billion 2 years ago, is the biggest ever Internet IPO. However, the social media’s offering was marred by investor confusion and trade delays that resulted in losses worth millions of dollars for brokerage firms.

Since Alibaba’s offering is going to be much bigger, the company cannot settle for anything less than an exchange that can assert control and avoid the headache and confusion that characterized the Facebook IPO.

NYSE Preying on Nasdaq’s Dented Image

The NYSE has benefited from Nasdaq’s dented reputation. Last year, Twitter Inc. (NYSE: TWTR) opted to list in the NYSE rather than Nasdaq, the de facto home of tech companies. Out of the 37 technology companies that IPOed last year, Nasdaq only managed to attract 15 compared to NYSE’s 22. This year NYSE has already listed King Digital Entertainment Plc’s, Candy Crush-maker, and now Alibaba.

In one decade, dating from 2001, Nasdaq won 122 IPOs while NYSE registered merely 45. However, from 2012 January to the end of Q1 this year (March 31), the number of tech companies listing in the NYSE has eclipsed that at Nasdaq, with the two exchanges registering 45 and 35 respectively. Nevertheless, NYSE still trails Nasdaq in the amount of money raised from the IPOs during that period, which are $8.8 billion and $20.7 billion respectively, thanks to Facebook’s $16 billion offering at Nasdaq.

The only two available stock exchanges in the U.S. had been closely courting Alibaba after it had decided to shelve its Hong Kong stock market preference. NYSE lost leading web portal Sina (Nasdaq: SINA) and Chinese top search engine Baidu (Nasdaq:BIDU), but the exchanges have shared the spoils in 50-50 manner. All in all, Alibaba is a big catch for NYSE as far as high-tech companies with massive growth potential is concerned.

About Alibaba

Alibaba was founded in 1999 by a former English teacher turned tech- entrepreneur in Hangzhou, China. The company, which turned profitable in 2002, has since grown to include a number of platforms including Taobao, Tmall, and a mobile payment platform, Alipay. In 2005 Yahoo became the company’s largest single shareholder by acquiring 40% stake, but later in 2012, the internet pioneer cut this stake to about 24%. During the IPO, Yahoo is expected to further reduce this stake to almost 12%.

Alibaba’s business is better defined as a combination of Amazon and EBay. It filed for $1 billion IPO in May, though the value is eventually expected to be bigger.