How do you apply market risk to Alibaba

Have you heard of Alibaba? Probably not, but that would make it the largest company you’ve never heard of.

It accounts for 80% of all online retail sales in China.

WHAT IS IT

The company was first created by Jack Ma in 1999. At that time, the website helped to connect exporters in China (and other countries) with other companies and countries around the world.

The system would, for example, let a business in the UK find a manufacturer in China.

Since those early days, Allibaba has grown. Today, it also owns taobao.com, China’s largest shopping website, and tmall.com, which offers goods to China’s growing middle class.

It also runs the Paypal like payment system alipay.com

These are just the companies it owns – it also has a large stake in Sina Weibo, China’s version of Twitter, and the online video provider, Youku Tudou, which operates like YouTube.

This week it is going live with its IPO – Initial Public Offering.

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Alibaba has officially said it is expecting to price its shares at between $66 and $68 a share. That is up from its earlier price range of $60 – $66.

This increase suggests demand for the shares is very high.

Alibaba’s is already anticipated to be the largest IPO in the US, overtaking the Agricultural Bank of China’s 2010 debut which raised $22.1bn.

The company is selling 123.1 million of the 320.1 million shares in the IPO.

Meanwhile, shareholders are selling the rest.

By the end of next week, Alibiba could be as common a name in the west as Facebook and Amazon.

UPDATE

Alibaba’s shares closed high above their initial price on the New York Stock Exchange on Friday.

Shares in the company debuted at $92.70 US, after being priced at $68 late on Thursday.

They ended at $93.89. That’s 38% above the initial asking price.

 

P4Capitalsept

 

Jim: An IPO should really mean the ‘first time coming to the party.’ The question is will the new guests kill it, or make it better?China has a new model we’ve never seen before. They are a very closed, top of the food chain political society with pure capitalism going on underneath. We’ve never seen a model that doesn’t use capitalism all the way through before.
China spends an unbelievable amount of money, but it’s a very controlled society. How do you have a public trading facility – which all stock exchanges are – with a closed, secretive element at the top?
Now that Alibaba is coming in to the stock exchange, everyone is holding their breath to see if it will follow the transparency rules that are in place. How do you verify public information in a closed political society? If Alibaba is doing well, how can we compare that to another company when it’s being so secretive?
 
Archana: I read that the true head of Alibaba chooses to remain in the shadow of the big boss. Since China is very secretive, there is one person who is the face of the company, and everything else is closed. When you’re trading in a global society, you have to be much more transparent.  Plus, these guys are supposedly bigger than Ebay and Amazon put together.
When Alibaba de-listed itself in 2012 from the Hong Kong stock exchange, company officials explained the decision saying that they wanted to recoup by freeing the company from the “pressures of market expectations and share price fluctuations.” The company made its stellar debut last week on the NYSE! What remains to be seen is what kind of lasting impact a Chinese major is able to cast on the American landscape! This record IPO might very well have been in Hong Kong, had they not rejected to the complicated share structure of the company. The share structure allows 30 individuals, some of whom are not directly employed by Alibaba, to name directors to the company’s board. Added to this are the restrictions on foreign ownership in Chinese technology companies, whereby companies do not actually own direct shares in the company, but own shares in an offshore holding company that directs cash flows to investors.
Despite all this, the resounding debut shows the faith that the market places on Ma and his crew to run their company as a model of corporate transparency! What happens next, only time will tell…
Shaheerah: Back in September 2013, Alibaba was unable to get an IPO with Hong Kong regulators. But now, ironically, in the U.S., where regulations are stricter, the company is set to be listed on the NYSE. It’s expecting to raise more than $20 billion– the largest ever technology listing in U.S., exceeding that of Facebook. This could very well be a new mark in American history. There is certainly huge demand for Alibaba stock, which is not surprising given the fact that Alibaba successfully attracts a whopping 188 million visitors per month on mobile devices. The company has reportedly experienced a 46 per cent increase in revenue, boosting it to $2.54 billion in the recent quarter end (June 30). But research shows that in the past, Chinese stock listings on American markets have lost an average 1 per cent a year for three years, have failed to keep up with inflation, and have been known for poor investment returns and corporate fraud. Will Alibaba have the same ill fate? That is yet to be seen.
Jeremy: The numbers that Alibaba is putting out need to be verified by US forensic accounting companies likes Deloitte. Then there’s the question whether the bureaucracy in China will even allow Deloitte to look at them.
Which is why the IPO of Alibaba is being done in New York rather than in Asia,  because New York has the strictest compliance rules in the world. Alibaba is essentially the Chinese economy.  If I’m not mistaken, Alibaba even allows banking services between people – not transactional, but like deposits and loans.
Compliance is the hoops the company owners jump through before they are allowed the privilege of listing their stock on the stock exchange. Typically, a company has to be around for some number of years, and been profitable for a few of those before they can go ahead with their IPO. Regardless, Alibaba is going to be the biggest IPO in history.
P4Capitalsept

What do you think?

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