Alibaba IPO to put the likes of Amazon and Facebook in shade

E-commerce company on course to rank behind only Google among the most valuable internet businesses

An employee at Alibaba’s headquarters on the outskirts of Hangzhou, Zhejiang province. Alibaba Group Holding Ltd’s planned IPO is set to create a long list of multi-millionaires from its partners in the company. Photograph: Chance Chan/Reuters

An employee at Alibaba’s headquarters on the outskirts of Hangzhou, Zhejiang province. Alibaba Group Holding Ltd’s planned IPO is set to create a long list of multi-millionaires from its partners in the company. Photograph: Chance Chan/Reuters

 

China’s Alibaba has filed what is shaping up to be the largest technology debut in history, when the e-commerce giant makes its initial public offering in New York. Analysts estimate the IPO will value Alibaba, which runs 80 per cent of all e-commerce in the world’s second-largest economy, at between €98 billion and €177 billion.

In a country where steel production was for so long the yardstick of success, electronics is now the king. Or at least, electronics are now party secretary in this nominally Communist country.

At the top of the range of forecasts, the company would rank behind only Google among the most valuable internet companies, outranking Amazon and Facebook.

Companies such as Alibaba are evidence of China’s growing clout and sophistication, along with tech stocks like Huawei Technologies and Xiaomi.

As the listing gradually became a reality, Alibaba has been on a highly strategic spending spree, and has already spent more than €2.5 billion on at least seven acquisitions over the past year, aimed at keeping pressure on archrival Tencent, an online games and social networks company that operates the immensely popular WeChat mobile messaging application.

Alibaba and a fund set up by founder and executive chairman Jack Ma are spending €890 billion to buy an 18.5 percent stake in Youku Tudou, China’s version of YouTube.


Online marketplace
“This is an important strategic initiative that will further extend the Alibaba ecosystem and bring new products and services to Alibaba’s customers,” said Ma.

Last month, Alibaba launched a service for film investment, called Yu Le Bao, a vehicle similar to crowdfunding (but crucially, not crowdfunding, as that is banned in China) that lets thousands of ordinary Chinese become micro-financiers for movies.

The vehicle, which allows ordinary Chinese citizens to make microinvestments in hotly anticipated upcoming movies, met its €8.5 million target in less than a week – and could have raised tens of millions more.

Alibaba is basically an Amazon-like online shopping mall, an eBay-like venue for individuals to buy from other people, a business-to-business sales platform and a PayPal-like online payment platform.

In contrast to Facebook and its tech brethren, Alibaba will come to market as a tremendously profitable company. Sales on its two main platforms, Taobao and Tmall, were €173 billion in 2013 and made up about 70 per cent of all package deliveries in China.

Taobao has about 800 million product listings from seven million sellers who pay Alibaba for advertising and other services.

The company, which is based in Hangzhou, offers an online marketplace for everything from shoes to Boeing jets.

The company is enormous. It was reported last year that it has three data centres in China that can process more than one petabyte of data in one day, which is about three times what it takes to store the entire US population’s DNA.

Alibaba will make its market debut in the United States, and not in Hong Kong as had been previously expected. These are heady days for stock market listings in the US, and the market has started the year at its fastest pace since the dot-com era.

Alibaba will become the largest Chinese corporation to list in the US, either on the New York Stock Exchange or the Nasdaq.

According to the Wall Street Journal, Alibaba and its bankers are discussing adding new shares to its listing, a move that would enable the company to raise funds for itself alongside some of its current investors.

The addition of new Alibaba shares could help push the IPO beyond €14.43 billion, and it could potentially outstrip Agricultural Bank of China, the largest ever with €16 billion, closely followed by ICBC with €15.8 billion.


Strategy and leadership
One of its largest single investors is US-based Yahoo, although Alibaba has bought back a significant portion of Yahoo’s stake.

If all goes well with the IPO, the 49-year-old founder Jack Ma could be worth more than €7 billion.

People are watching to see what Ma does during the deal, and whether he will sell his stock in the IPO. He personally can claim much of the credit for building a 25,000-employee powerhouse that forced EBay out of China.

Although he retired a couple of years ago, he still has a key role in deciding strategy and leadership, and he has been hailed as China’s smartest chief executive by everyone from the Chinese government to Fortune magazine.

He and a small group of other founders and executives may try and retain some control, such as the power to name a ruling majority of the corporate board.

Ma is quite a character, a real visionary in a country where finding people capable of “thinking outside the box” can be difficult. He began as an English teacher, after gaining a degree from Hangzhou Teachers’ Institute in 1988, but it wasn’t long until he was working his way up what was then the newly-designed Chinese corporate ladder.

Over the course of his career, Ma has negotiated carefully the tricky path between the rigours of the highly competitive private sector and the demands of the Communist Party, keen to keep oversight and control of the emerging world of the internet. He personifies China’s reformist side.

Ma founded China Pages in 1995, which is generally agreed to be China’s first internet company. Rather than rushing ahead, Ma played it strategically and headed up the information department of the China International Electronic Commerce Centre (CIECC), part of the powerful Ministry of Foreign Trade and Economic Co-operation (Moftec). It was only in early 1999 that he left the ministry to launch Alibaba.com, his connections in government secure.

Alibaba was created during what were still dark days in the Chinese IT world, when he was forced to tinker with an unfeasibly slow internet connection that took nearly four hours to download a page.

More recently, Ma has focused on developing tai chi and kung fu skills in China with martial arts star Jet Li, but he remains one of China’s most powerful people and has strong links to the ruling Communist Party, especially the premier, Li Keqiang.

Investors in China are always on the lookout for new vehicles. The stock market is tightly controlled, and the real estate market has become expensive, plus ordinary Chinese are generally not allowed to invest overseas.

Alibaba has provided a platform for 80,000 online retailers to sell goods, and now it is going after 30,000 offline stores as it tries to blur the lines between online and offline shopping.

The focus is Singles’ Day, November 11th, which is one of China’s biggest shopping days. Shoppers are being encouraged to go to the physical shops, pick out what they want and scan them into online shopping carts, and then actually buy the items on November 11th when there will be massive discounts.

China’s e-commerce market grew at an average rate of 71 per cent from 2009 to 2012, and its value is expected to reach 3.3 trillion yuan (€400 billion) by 2015, according to a report by the consultancy Bain & Co.

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