An internet marketplace based in China, not well known in the U.S., and comparable to competitor Amazon, is seeking investors for the first time in this country. Alibaba has placed its initial public offering (IPO) among the highest ever – $15 billion. That is just below Facebook’s IPO ($16 billion) when it went public as FB on NASDAQ two years ago. The market differentiator for Alibaba is that it will go public when it is already extremely profitable in another country.
Alibaba is a Hangzhou-based ecommerce site that allows buyers to participate in an online shopping mall (like Amazon), as well as in auction buyer-to-buyer activities, like eBay. It got its name from the character which discovers the key to its enemies’ treasure. A look at Alibaba’s site shows rock-bottom prices, according to U.S. standards, making it highly competitive with Amazon.com. Its other products include cloud computing (Aliyun.com), a Groupon-like deal offer (Juhuasuan), mobile apps, and Internet TV. In all, it has 12 major businesses and affiliates.
Alibaba also has a payment processing component, Alipay, which is like PayPal. Alipay is China’s most frequently used third-party online payment service. The payment unit was purchased nine years ago by Yahoo! for $1 billion, making it one of Yahoo!’s most valuable assets. This purchase allowed Yahoo! to own 43% of Alibaba; however, later actions resulted in a reduction of Yahoo!’s stake in the company to a current 24%.
Yahoo! reported that Alibaba Group transferred ownership of a significant portion of the unit without knowledge or approval of Alibaba’s board or shareholders. This has caused Yahoo! to be shy with respect to further business deals with companies in China. Alibaba group doesn’t share its finances; however, Yahoo! does, and reports that Alibaba’s revenues this year rose 51% from the prior year.
The recent decision for Alibaba to go public in the U.S. came after months of negotiation regarding its stock transfer. The deliberations centered on regulatory decisions in Hong Kong’s stock exchange (SEHK) concerning Alibaba’s management structure that includes voting shares. (Top executives own ten percent of the company and retain control of Alibaba’s board.) Based on these negotiations, Alibaba has agreed to continue to support Hong Kong in connection to its innovation and development, although the move to the U.S. is a disappointing loss for the SEHK.
Alibaba Group was established in China in 1999 by Jack Ma and 17 other founders. It was set up originally to rival Amazon and proved itself a viable competitor. Seven years after its inception, it had 3,500 employees and 8 million online suppliers from 220 countries and regions. It became successful and drew investors when in 2007 it got listed on the Hong Kong Stock Exchange. It is seeking to expand its reach further by joining the U.S. marketplace.
Alibaba’s decision to go public in the U.S. is based on its desire to become more global and to “enhance its transparency,” in addition to pursuing its vision and goals. It is unclear when the offering will be made, which major banks will back it (six are in discussion within Alibaba), and whether it will list on NASDAQ or the New York Stock Exchange (NYSE). Other internet-based companies in China which are currently expanding to the U.S. market include Sina Corp.’s Weibo microblog (like Twitter) and another online retailer, JD.com.
Alibaba’s substantial scope and size make it among the hottest companies in China today, which has investors eagerly anticipating its opening on Wall Street. Alibaba’s chief competitor, Amazon, has enjoyed quick growth and high market share in the U.S. For Alibaba, seeking its share of the U.S. market should be relatively easy compared with the past few months of negotiation.
By Fern Remedi-Brown