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Alibaba shares roars as it make its debut at the NYSE

September 22, 2014 By Lee Ways

Alibaba shares gains 38% on debut making new millionaires

After courting investors for months, on Friday Alibaba Group Holding Ltd (NYSE: BABA) finally made its debut in the U.S. stock market, the NYSE, in a frenzy after it received oversubscription of its shares. Alibaba shares were priced at $68 but open trading at $92.70 and closed 38% above its IPO price.

The Hangzhou based e-commerce giant has been the subject of discussion in the investment world. There were fears that there would be investor apathy, but the stock traded more than 100 million shares just moments after its Chairman Jack Ma rang the opening bell to herald the entry of Alibaba in the stock market.

The company raised about $21.8bn in its share sale, and sold additional 48 million shares through the green-shoe option after investors demonstrated a strong appetite for its stock. In total the China’s e-commerce giant raised over $25 billion, breaking China’s Agricultural Bank that raised $22.1 billion in 2010.

Millionaires from Alibaba IPO

Every tech IPO makes millionaires and Alibaba IPO is no exception. From its founders, employees to investors, Alibaba is has produced millionaires through its debut in the stock New York market.

Here are some of the beneficiaries of this IPO:

Masayoshi Son, SoftBank CEO

Japanese SoftBank is the largest Alibaba shareholder with a 32% stake. The company expected a total of $4.6 billion from a successful Alibaba IPO. The IPO was not just successful; it was outstanding as the share price opened trading at $24.7 higher than its IPO price and jumped 38% on its first day of trading.

Considering that Masayoshi Son invested just $20 million in Alibaba in 2000, his investment will pay handsomely.

Yahoo Shareholders

The U.S. internet pioneer Yahoo! (NASDAQ:YHOO) is Alibaba’s second largest shareholder 24% stake. However, the floundering American tech giant is known to have sold part of its stake. As I said in the past, Yahoo and SoftBank shares provided a shortcut to benefiting from Alibaba IPO. It appears many people took this advice and just after the Alibaba IPO, Yahoo traded over 90 million shares, 3 times more that its daily average volume.

Alibaba Founders

Alibaba chairman Jack Ma and vice chairman Joseph Tsai lead a team of other Alibaba 10 top executives who are smiling all the way to bank after the Friday IPO. Initial filings show that Ma had 206.1 million shares, while his vice had $83.5 million shares. Even at the IPO price of $68, this shares are worth a fortune. The remaining 10 executives owned close to 52.3 million shares stake.

Alibaba’s second biggest individual windfall will be for Tsai, Alibaba’s vice chairman. His 83.5 million shares will be worth between $5.5 billion and $5.68 billion at the current price range. And he’s selling around $300 million worth of shares.

 

About Alibaba

Alibaba is a leading e-commerce company that operates various online marketplaces in China. The company controls over 80% of China’s e-commerce and is now seeking to reach the more advanced markets such as the U.S. and Europe, and emerging markets such as Malaysia, India and many more.

Alibaba is an internet harbinger for the first trillion dollar company. It transacts more sales than Amazon and eBay combined. What’s more, it does not stock products as Amazon does, and so its expenses are relatively low.

Alibaba is also into banking services and operated a payment service unit known as Alipay. However, the company furtively divested this unit and this was among the thorny issues Jack Ma had to explain to investors. As at now the PayPal-like payment unit is an affiliate of Alibaba.

The company has also invested heavily in the digital entertainment market. The company has stake in video games segment, movies and many more. The company recently completed acquisition of ChinaVision and renamed it Alibaba Pictures. In the digital entertainment industry, Alibaba competes with Asia’s largest public listed company Tencent Holding Ltd. (OTCPK: TCEHY).

Filed Under: Alibaba News Tagged With: Alibaba IPO, alibaba shares, Jack Ma, millionaires

Alibaba IPO and the U.S. Market

September 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.

Filed Under: Alibaba News Tagged With: Alibaba, Alibaba IPO, china market, eBay, IPO, Jack Ma, u.s. market

A letter to Alibaba investors by Jack Ma

September 8, 2014 By Lee Ways

Jack Ma, U.S. investors, Alibaba IPO

Jack Ma writes to investors after pricing Alibaba

Alibaba (pending NYSE: BABA) has priced its IPO in the range of $60 to $66, valuing the company slightly below $160 billion. This is according to the e-commerce giant’s documents with the Securities and Exchange Commission revealed last Friday. While Alibaba is much profitable than its U.S. rival Amazon.com (NASDAQ: AMZN), the price range makes its a little bit cheaper.

Alibaba chairman has penned a letter to the company’s potential investor. Here is his letter:

Dear Investors,

Thank you for taking the time to read our prospectus, and for considering investing your precious resources in our company. If you invest with us, you will be embarking on a journey with Alibaba, and in this letter I would like to share with you some of our thoughts and beliefs for the future.

Our Mission and Vision

Alibaba is a values-based company driven by our mission “to make it easy to do business anywhere.” Our proposition is simple: we want to help small businesses grow by solving their problems through Internet technology. We fight for the little guy. Since our founding in 1999, we have helped millions of small businesses to achieve a brighter future, and we hope to do this for at least 102 years, thus spanning our company’s life over at least three centuries.

We do not simply attempt to push the boundaries of technology—instead we seek to harness technological improvements to expand the boundaries of business. Alibaba is not the creation of a few technology innovations or a couple of whiz kids. We have developed an ecosystem that has been built by tens of millions of participants who are passionate about the future and steadfast in their belief that the Internet should be fair, open, transparent and shared. Together, these participants have invested time, energy and passion into this ecosystem, and today the world can see what they have accomplished.

From the very beginning our founders have aspired to create a company founded by Chinese people but that belongs to the world. In the past decade, we measured ourselves by how much we changed China. In the future, we will be judged by how much progress we bring to the world. This challenge is enormous, but it is also a blessing to have this rare opportunity. This challenge requires us to do our best day-to-day, but most importantly it requires us to think about what is best over the long-term.

Our Ecosystem-based Business Model

Alibaba’s mission makes it impossible for us to become an empire-like business. We believe that only by creating an open, collaborative and prosperous ecosystem that enables its constituents to fully participate can we truly help our small business and consumer customers. As stewards of this ecosystem, we spend our focus, effort, time and energy on initiatives that will benefit the greater good of the ecosystem and its various participants. We can only be successful if our customers and business partners are successful.

We firmly believe that businesses in the 21st century must take responsibility to help solve the problems of society. In the history of our development, social responsibility has always been embedded in our corporate DNA. We believe that a healthy and prosperous ecosystem can only be achieved through solving large-scale problems of society.

The Internet has given us a once-in-a-lifetime opportunity to create a new business paradigm in China. This transformative work will not be easy, and it will require us to be consistent, to work across many dimensions, and to focus on what’s best for the long-term benefit of our ecosystem and its participants. In addition, our mission requires our company to behave with the utmost degree of fairness, transparency and efficiency toward participants in the ecosystem. This is not only a moral duty, but also the foundation of our own survival and growth. Our hard work has awarded us unique advantages — the complexity of our ecosystem and the challenges of sustaining its vigor mean that it is not easily replicated by others.

If you own shares in our company, you will become a part of our ecosystem. This means that the Alibaba team will have a duty to look after your interests. But it will also mean that you will have an important responsibility to help us maintain and grow our ecosystem by sharing our view that success will be defined as sustainable, long-term growth and prosperity.

How We Will Meet Our Challenges

Our journey over the past 15 years has not been easy, and we have faced our share of challenges. We have often found ourselves in complex situations where we must make difficult choices among competing interests: between buyers and sellers; between competing sellers; between entrepreneurialism and regulation; between innovation and the need for stability. Behind every substantial innovation or step forward, we have encountered and will continue to encounter resistance from vested interests who prefer the status quo.

In addition, many problems in the real world manifest themselves in different shapes and forms in our ecosystem, including intellectual property infringement and those who seek to exploit our ecosystem for unfair gains. Like all companies today, we must grapple with these tough issues. Even an ecosystem built on the Internet cannot be entirely free from problems in the traditional economy, because the participants in our ecosystem and their activities cannot be isolated from the physical world. It is by no means easy to handle these issues because there are no perfect solutions to regulate an economy to begin with. By the same token, an ecosystem cannot be perfectly designed ahead of time because it evolves organically. Alibaba’s development therefore must embrace rapid change according to our evolving environment.

After we become a public company in the United States, we will face new challenging issues. When an Internet company of our scale that originated from China enters the global scene, you should expect that it will encounter skepticism from different directions due to differences in cultural perspectives, values and even geopolitical positioning. While it may be difficult for a public Alibaba to side-step controversy, we hope that controversies generate constructive debate and add fresh perspectives to the dialogue on globalization.

It is not our style to shy away from challenges. As a shareholder of Alibaba, you can rest assured that we will stick to our ideals, be ourselves, focus on the future and adhere to the principles of integrity and transparency in our corporate governance. We will act in a way to safeguard the long-term value and sustainability of the ecosystem. Your trust and support will be our greatest asset, and our creed is to not forsake the trust that people have in us.

How We Set Priorities

I have said on numerous occasions that we will put “customers first, employees second, and shareholders third.” I can see that investors who hear this for the first time may find it a bit hard to understand.

Let me be clear: as fiduciaries of the company, we believe that the only way for Alibaba to create long-term value for shareholders is to create sustainable value for customers. So customers must come first.

Next come our employees, because in today’s knowledge economy, employees are most important in having satisfied customers. Without talented, happy, diligent and passionately committed employees, our commitment to serving customers will be empty. A company that does not have satisfied employees will not have satisfied customers, and without satisfied customers, we could not possibly have satisfied shareholders.

We respect and are grateful for investors who support us with their precious capital. Our history with long-term investors, including Yahoo YHOO +0.57% and SoftBank, has demonstrated that our investors can benefit substantially from sharing our long-term approach. Not only that, our investors will also derive satisfaction in knowing that they will help Alibaba to create jobs, spur innovation, level the playing field for small businesses, and drive transformation for social and economic growth.

Our company will not make decisions based on short-term revenues or profits. Our strategies will be implemented with mission-driven, long-term development in mind. Our people, capital, technology and resources will be utilized to safeguard the sustainable development and growth of the Alibaba ecosystem. We welcome investors with the same long-term mindset.

Corporate Governance

To ensure the sustainability of the company and the interests of our customers, employees, investors and other ecosystem participants, we have always operated under the principles of collaboration and shared commitment among those who are responsible for our business. This operating philosophy is embodied in the Alibaba Partnership. We believe that our partnership approach has helped us to better manage our business, with the peer nature of the partnership enabling senior managers to work as a team and override bureaucracy and hierarchy.

Our ecosystem is too complex — and too important — for us to depend on one or two founders or executives, no matter how capable they are. We must deal with the issue of sustainability and succession systematically. Our partnership system promotes people with different skill sets but all having the same beliefs and values. It is not a system established to protect individual interests. It exists to safeguard our mission, values, vision and culture. Each year, by admitting new partners, we inject new energy and perspectives. In this way, we can ensure that our operations will continue to improve with time and scale.

In the interest of building a business ecosystem that is healthy, sustainable and growing, the corporate charter of the company empowers the partners in the Alibaba Partnership to have a strong say in charting the strategic direction and moral compass of the company. We have invested a lot of thought into creating this structure and, with a heavy sense of responsibility, we exercise great care in the selection and admission of partners to the partnership. I encourage you to study the description of the Alibaba Partnership in the prospectus to learn more about our philosophical approach to this important aspect of corporate governance, an aspect that we believe is unique and innovative.

Following our IPO, you will receive a letter like this one each year in our annual report. My partners in the Alibaba Partnership will take turns writing the annual letter.

I would like to thank you for considering an ownership in Alibaba. My colleagues and I would like to assure you that we are committed to serving the Alibaba ecosystem for the benefit of all of its constituents.

Jack Ma

Executive Chairman

Alibaba Group Holding Limited

 

Filed Under: Alibaba News Tagged With: Alibaba IPO, Jack Ma, Ma's Letter

Jack Ma, a Concern for U.S. Investors

July 28, 2014 By Lee Ways

Jack Ma, U.S. investors, Alibaba IPO

U.S. Investors Must be wary of Jack Ma

In a month’s time, Alibaba Group Holdings will open its shares for U.S. investors in a grand IPO that is expected to raise more than the $16 billion raised in 2012 by Facebook  Inc. (NASDAQ:FB). The Chinese e-commerce giant, founded and headed by Jack Ma, has already chosen the New York stock Exchange as its preferred destination under the ticker BABA.

Most analyst valuation puts Alibaba in league with the top five most valuable tech companies. Therefore, its IPO will present the U.S. investors with an opportunity to hold a large cap stock. And while everything about this Chinese conglomerate is huge, there is one pressing concern that every investor must look at with an open eye and sober mind, Mr. Jack Ma.

Jack Ma is a shareholder but an even bigger force

Ma holds 8.9% of Alibaba stake. This is a partly fraction to the 22.6% that Yahoo! (NASDAQ:YHOO) or 34.4% that Japan’s SoftBank (SFTBF) owns. Nevertheless, Ma is the most powerful shareholder and member of the board. His capabilities transcend his official title; he is a public figure and enjoys the backing of the Beijing regime.

Here is why every U.S. investor should be wary of Ma:

Ma and Alibaba Partnership

Alibaba amended its IPO filing to accommodate a strange clause that allows a committee of merely 27 partners to collectively nominate more than half of the board of directors. The shareholders then vet the nominees and can veto whoever they are not comfortable with.

However, the partners have the power to choose an alternative in acting capacity until the next AGM. It is surprising that both majority shareholders, SoftBank and Yahoo have backed this partnership. The SEC listing amendment meant that the total power of the company rested with Ma and his small clique of partners. This follows that the U.S. investors who will buy alibaba shares will have trusted this clique to make decision on anything regarding the company affairs.

Jack Ma Political Influence and Alibaba Legal Structure

Jack Ma’s political influence is another pressing concern if the legal structure is anything to go by. Interestingly, one of Alibaba’s funds is founded by the son of Wen Jiabao, a former premier.

Alibaba’s important licenses are held through variable interest entities (VIEs) to bypass the Beijing legislation on foreign ownership. He is very familiar with these structures, and that’s why he was able to divest Alipay (PayPal like payment unit) from Alibaba without Yahoo!’s prior knowledge, let alone its consent. Then Yahoo! was Alibaba’s largest foreign shareholder. His argument was that the unit needed an important license from the People Bank of China (PBC) in a moment notice.

The company’s existence in Zhejiang where China’s president, Xi Jinping, was formerly the province’s party chief, has helped Ma to enjoy Beijing’s support. This influence has helped the company overcome many obstacles that has hindered the progress of many non-state companies in China. However, this influence could play against U.S. investors should there be conflict arising from the company’s legal structure.

Conflict of Interests

As at now, Mr. Ma owns the foreign vehicle that owns both Alipay and its money-market fund affiliate. Since the two money units are still in partnership with Alibaba through complex contracts, there could be a conflict of interest in the future.

Other reasons that highlights Ma’s unilateral decision includes the recent impulse purchase of stake in irrelevant sectors such as acquiring stake in Chinese soccer team, and irregularly lending cash to one of his partners in the disguise of acquiring stake in cable TV company. There also other cases where his private equity funds has been lined up as a co-investor.

Conclusion

Jack Ma founded Alibaba and he has been the force behind it since its inception. He has watched the company grow from just one platform, Taobao, to multiple platforms with almost 85% control of the world’s largest e-commerce market. The company’s quarterly revenue (2014 Q1) stands at $1.5 billion, an increase of about 39% a year earlier.  It would be ridiculous to question Ma’s leadership given this success. However, company is now going public and a public company would want a leader who serves the best interests of its shareholders. Can Jack Ma do that?

Filed Under: Alibaba News Tagged With: Alibaba IPO, Alibaba Partnership, Jack Ma, U.S. investors, Yahoo

Jack Ma Does it Again

July 14, 2014 By Lee Ways

Jack Ma and His Partners Now Have the right to expand board

Alibaba IPO has gained media attention for a while now, and everyday the company moves close to its New York stock exchange debut date. The company has just amended its Securities and Exchange Commission filing, and the amendments include its estimated valuation which has swollen from at least $116 billion to about $130 billion now.  However, what has caught the eye of many stakeholders is the clause that gives Alibaba partnership the right to add two more board members.

Amended SEC listings aside, you must have heard an outcry about certain aspects of Alibaba Group Holding Ltd. Prior to this amendment, the company was structured such that Alibaba partnership, which is a group of 27 top executives and investors, including Jack Ma, would appoint at least four of the nine directors to the board. The amendment revealed on Friday in the U.S. regulatory filing  now brings the board members to 11.

The Chinese ecommerce giant is only a couple of weeks away to debut in the U.S. stock market. This debut is expected to trounce Facebook Inc.’s IPO as the largest technology IPO in history. It might as well go down in history as the largest initial public offer ever seen in the world.

Jack Ma and Partners

The economist published an article on July 13 claiming that Jack Ma had opted to list in the U.S. in place of Hong Kong, not because the former is superior, but because it accepts dual-share structures that tech entrepreneurs use to retail control in their co-founded companies.

Alibaba’s share structure has been questioned severally; however, nothing seems to happen. Instead, it is getting worse. The SEC listing amendment has handed total power to the company’s founder and chairman, and a small clique surrounding him. It is claimed that Hong Kong had refused to allow this structure, which gives control to only a small group of people in a company as big as Alibaba.

Ma, formerly an English teacher, founded Alibaba in his apartment back in 1999. Though he did not know match about writing codes, with the help of partners this company has since grown and diversified its products to include even financial investment. And while his contribution to this company is unmatched, and devotion unquestionable, the multifaceted governance structure employed by Ma and his partners is a serious concern to investors.

 

Filed Under: Alibaba News Tagged With: Alibaba Partnership, Jack Ma, SEC listing

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