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Alibaba Files for an IPO: Why You Should Care

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And why is this a big deal? Because Alibaba does huge business, and therefore is going to be worth a lot of money. Last year, Alibaba sold $248 billion in goods—everything from frozen fish fillets to Nike sneakers to used jetliners. In one day last year, it saw $5.8 billion in transactions. Alipay was used in payments worth $519 billion. Alibaba is the biggest e-commerce site in the world’s fastest-growing economy, one where many inhabitants aren’t even online yet. Because it functions largely as a marketplace, Alibaba’s operating costs are relatively low, and that, along with its very low taxes, means it enjoys profit margins of 45 percent.

Analyst estimates for the company’s post-IPO value range from $136 billion to $245 billion. If it’s anywhere but at the bottom of that range, that means the company will be more valuable than Facebook (FB).

And it's more valuable than Amazon (worth $130 billion).

In technology, only Apple, Google, and Microsoft are bigger. For now.

Alibaba will be the first company to do $1 trillion in annual transactions. That boggles my mind.

Alibaba estimated its fair value as of this month could reach $50 per share, an increase of more than six times from the $8 a share value estimated in June 2011, according to the prospectus. This calculation helps determine employee compensation and does not necessarily represent a likely IPO price.

It is now above $90 per share. Wow. 

While Alibaba’s filing with the Securities and Exchange Commission says it expects to raise $1 billion, that is a number to ignore. It will state a real aggregate dollar amount for the offering later on. Alibaba really is expected to sell at least $20 billion in shares, which would make its IPO the largest ever in the United States, beating Visa Inc.’s (NYSE: V) $19.65 billion IPO in 2008. If all goes well, the IPO will happen this summer or early fall.

What one learns from the prospectus is that Chinese corporate law, and the government’s with it, are incredibly complex. Alibaba is incorporated in the Cayman Islands. Its Chinese assets are owned by a series of companies mostly owned by Chairman Jack Ma, who started the company in his Hangzhou apartment in 1999. That is because Chinese law forbids foreign companies from owning Chinese assets.

They've really done an amazing job of building a scalable global organization. 

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