Alibaba IPO is Like Investing in Amazon in 1995
Companies / Tech Stocks Nov 27, 2013 - 01:14 PM GMTBy: Money_Morning
Kyle Anderson writes: On Nov. 11, Chinese e-commerce giant Alibaba Group Holding Ltd. set a company record for most sales in a 24-hour period when $5.7 billion was exchanged over its network of websites.
That's nearly four times the $1.46 billion in online sales logged on the United States' largest online shopping day of the year - "Cyber Monday" - in 2012.
The sales came over the company's two main platforms, Taobao and Tmall, during China's "Singles' Day." The holiday is a reverse Valentine's Day, when bachelors and bachelorettes celebrate their "single lives" and, apparently, spend a lot of money.
The $5.7 billion boon represented an 83% jump from the sales of the previous year - and equals almost half of the entire size of China's e-commerce market in the third quarter.
Now this lucrative e-commerce leader is considering an IPO in the United States in 2014 - and it could be the biggest tech IPO ever.
"Alibaba is a one-time thing," Benjamin Joffe, an angel investor and founder of the Beijing consultancy Plus8Star, told CNBC. "How often do you list a $100 billion company?"
Who Is Alibaba?
Founded in 1999, Alibaba offers its users business-to-business web portals, online retail and payment services, and a shopping search engine. Some analysts call it the "Amazon.com of China," but it also mixes in qualities of eBay.
It has grown into an almost $5 billion a year company. Just last quarter the e-commerce company raked in revenue of $1.73 billion - a surge of 60% from the previous quarter.
The reason for its surging sales is the explosive Chinese e-commerce market.
The sheer volume of online transactions occurring in China is staggering.Our Private Briefing serviceEditorWilliam Patalon III wrote earlier this summer that online retail sales in China had grown 60.2% in the first six months of 2013, to $139.6 billion.
"The spectacular growth rate shows the potential for online shopping," Ronald Wan, chief China adviser at Asian Capital Holdings Ltd., told Bloomberg. "This will boost momentum for Alibaba, give its potential investors confidence and prompt traditional retailers to think hard how to cope with challenges from e-commerce."
And now reports indicate that mobile sales are skyrocketing in China as well.
According to Alibaba, $877 million of its Singles' Day sales came from mobile devices. That accounted for 21% of the company's transactions and was a 500% increase from the year before.
Expect this mobile trend to continue as the Ministry of Industry and Information Technology (MIIT) reported this summer that smartphone sales in China were up 96.4% in the first half of 2013.
All of these factors have some analysts predicting a value of more than $190 billion for Alibaba. That's compared to a valuation of $104 billion for Facebook after its market debut.
Alibaba IPO 2014
With American companies like Amazon and eBay dominating the e-commerce market, Alibaba doesn't currently have much name recognition stateside. The fact that the majority of its vendors are located in China doesn't help either. A listing in an American market would change that.
Alibaba initially decided against trading on the Hong Kong Stock Exchange when the exchange took issue with the e-commerce company's governance structure. Alibaba keeps control of the company in the hands of a minority - 28 founders and shareholders.
Neither the New York Stock Exchange nor the Nasdaq took exception to the management style, and both have provided assurances that the partnership structure for its share offering would be permitted.
Rather than switch its management model, Alibaba would rather look outside of Asia for a trading exchange.
Alibaba's closest ties to U.S. markets is that Yahoo! Inc. (Nasdaq: YHOO) owns a 24% stake in the company. That position lends credibility - and a familiar face - to those uneasy about investing in a Chinese company.
If recent sales figures and consumer trends are any indication, Alibaba should continue to post record numbers when it comes to online shopping.
Mark Alibaba as the "must-watch" IPO of 2014.
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