Tuesday, September 30, 2014

10 Things To Know About Alibaba’s IPO

10 Things To Know About Alibaba’s IPO


10 Things To Know About Alibaba’s IPO
On Friday, September 19, 2014, Chinese Internet company Alibaba, began trading shares at the New York Stock Exchange. Originally priced at $68, the prized stocks actually opened at $97.20, giving the company a 36% jump when they started trading at noon. Due to the huge jump in price, Alibaba had a valuation of about $230 billion dollars. If you add the valuations of Amazon and E-bay together it does not even equal Alibaba’s valuation. This IPO has became the 2nd largest IPO opening in US history. Only Visa had a better initial IPO back in 2008. So here are 10 things to know about Alibaba’s IPO.

1. The Company

Alibaba is often compared to Amazon; however, this is not a good comparison. Amazon is an e-commerce site, selling and shipping merchandise to its customers. Alibaba operates quite differently. It is a group of different sites that each operate differently. Alibaba has 3 different types of sites, one like E-bay, one online marketplace, and a site similar to Groupon. Another difference is that Alibaba does not ship any merchandise. They just provide a huge marketplace where vendors, big and small, can place their items for sale and then the vendors take care of the shipping. Alibaba also has interests in a web payment site, similar to PayPal. Additionally they have invested in online videos, cloud storage, and mobile messaging.

2. Jack Ma, The Founder

Jack Ma was an English teacher before founding Alibaba in 1999. He created this now huge company in his apartment. While he really does not know how to do the technical things for Alibaba, he is a great business man who has been able to grow the company to what it is today. While Mr. Ma sold a small portion of his holdings in Alibaba, he still holds about 193 million shares. After the close of business on Friday, Jack Ma’s holdings totaled about $18 billion dollars.

3. Others With A Hand In Alibaba

Many businesses need investors during their growth, especially if they haven’t gone public yet. One company bought an interest in the company in 2005; that company is Yahoo. While they did sell some shares they held on to enough to still have a 16% stake in Alibaba. It is estimated that Yahoo sold about 120 million shares and made a profit about $8 billion. Softbank, the company that purchased Sprint, owns a 34% stake in Alibaba, making them they largest shareholder. Both companies are more like silent partners because they gave their shareholder duties to the Alibaba Partnership.

4. Structure of Alibaba

Alibaba does not operate like most companies. The Partnership includes Mr. Ma, and his right-hand man, Joe Tasi. These 2 men have control of the company. The other people in the Partnership are long standing employees who follow whatever the Joes decide. A Board of Directors is also part of the structure; however, they have little say in how the company operates since the Partnership nominates most of the boards. While this is a very unusual way for a public company to run it does not seem to bother most parties because Alibaba is a profitable company, making $1.4 billion in profits last year.

5. Woman in Top Positions

Alibaba is a company that believes in its women employees. They have taken the time to develop talented women since the company began. There are 18 co-founders of the company, 6 are women. As for the IPO, it was the responsibility of the top 2 women in the company. This is one company that truly believes in equality for women.

6. Why Does Everyone Want Alibaba Stock?

The most important reason is the amount of profit that Alibaba earns consistently. They not only make quarterly profits they also make yearly profits. Alibaba makes these steady profits because they have cut out one of the largest expenses Amazon has. Alibaba does not ship products to customers, so they do not need large distribution centers with many employees. This allows Alibaba to save money not only on wages, but also on the cost of benefits.
Another reason people are so eager to own Alibaba stock is because it gives them a bite out of the huge Chinese Internet population. Most Chinese tech companies are traded on the Hong Kong stock exchange. However, Alibaba was rejected when they applied to use Hong Kong to offer its IPO. The rejection came because of the concern of how the company operates. This was great for New York and US residents. It gives them a chance to own a piece of the pie of a giant Chinese company that is able to stay profitable year after year.

7. Risks

There are a few risks to consider before grabbing your piece of the pie. The biggest risk is the history of Chinese companies on the NY Stock Exchange. History shows that instead of the stock gaining each year, Chinese companies tend to lose 1% each year for the first 3 years. While this does not sound to bad, American companies tend to show a 7% profit each of the first 3 years.
Another concern for average investors, is the cost of the stock now. It jumped so high when it was first offered that individual investors need to decide if they are safe paying such a high cost per share or if they should wait and see what happens to the price. If they do invest it is recommended that they go in as long term investors. This is not a stock that will bring the average investor quick profits but should do well for them as a stock to hold on to.

8. Silicon Valley

Silicon Valley companies are really watching Alibaba closely. With its high IPO it is valued higher than most successful Silicon Valley companies. These companies, including Amazon, E-Bay and Facebook may be able to learn something from watching Alibaba which can help them become more profitable.

9. Alibaba.com

Alibaba.com is only one part of Alibaba, it is the online mall. In 2007 Alibaba.com went public on the Hong Kong stock exchange. It didn’t do very well so in 2012 it became a private company again. Does this mean that Alibaba, the corporation is doomed to the same fate? People don’t think so because as a corporation it has much more to offer and it is stronger than one piece alone.

10. What is Next?

Alibaba does not seem to be slowing down, instead they are still going strong. Over the summer they added a new site, 11 Main, which will be a direct competitor to Etsy. Other companies have tried and failed to knock Etsy off its pedestal. Will 11 Main be able to do that? Only time will tell. It took Etsy several years to grow to what they are now. If 11 Main is nurtured it may just have a chance.
Hopefully these 10 things to know about Alibaba’s IPO have been informative. You can’t really make a spur of the moment decision on an unknown. You need to get to know it, study it, and then decide if it is a good fit for you.