Sunday, September 21, 2014

Life after the Alibaba IPO

  • Jack Ma, a former English teacher, founded Alibaba Group Holding with a $60,000 investment in 1999 and started out in his one bedroom Hangzhou apartment . Today, Alibaba is the world’s largest e-commerce company.  After a global road show to share the firm’s story with investors, the company priced its shares in an initial public offering (IPO) at $68 this past Thursday. On Friday, the shares began trading on the New York Stock exchange at $92.70, and closed up 38% for the day.  The price values the company at $231 billion and made Jack Ma, the richest person in China, worth about $17 billion.
  • Alibaba’s on-line retail sites Taobao MarketplaceTmall, and Juhuasuan account for about 83% of revenue.  Other services include Alibaba.com, China’s largest global online wholesale marketplace and AliExpress, a global consumer marketplace that provides cloud-computing services.
  • Its partnerships include Alipay (payment and escrow services); Zhejiang Cainiao Supply Chain Management Co., Ltd. (shipping and logistics services), UCWeb (developer of a mobile web browser). Alibaba investments include $202 million investment in Shoprunner (U.S. shipping services similar to Amazon Prime), $217 million in 1stDibs (on-line luxury ecommerce site) and Lyft (ride sharing service)
MY TAKE
  • With the upside for the Alibaba story dependent on expansion both within China, (Internet penetration within the country is less than 50%) and abroad, it is likely that some of that potential is factored into Friday’s 38% price increase.
  • At the same time, the firm’s global aspirations will likely increase completion with smaller players such as AmazonBaiduEBay and Tencent.
  • The most significant risk for the firm is likely that economic growth in China slows down.
  • Bottom Line: In addition to building the world’s largest internet franchise, Jack Ma may also turn out to be one of the best market-timers of all time as well.

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