HONG KONG -- Alibaba Group Holding expects to raise around $24.3 billion through its initial public offering, according to a Friday announcement by China's biggest e-commerce company. The sum would be the largest IPO windfall of any Internet company, easily topping the $16 billion scored by Facebook.
Alibaba is finalizing preparations for its debut on that icon of American capitalism, the New York Stock Exchange. With the IPO expected in the middle of this month, Jack Ma Yun's company will begin its IPO "roadshow" early this week to gauge demand among investors and calculate an initial share price.
Based on a provisional per-share price range of $60 to $66, the Chinese e-commerce emperor would be worth $148 billion to $163 billion when it goes public. That cap would compare to online retailer Amazon.com and financial services provider Citigroup. Alibaba's ticker symbol will be BABA.
The imminent IPO will be monumental for Chinese companies. There are five points investors should know.
Alibaba offers e-commerce services primarily through Taobao and Tmall. Individuals and small businesses buy and sell stuff via Taobao, while big retailers and other companies use Tmall as an online sales platform.
Alibaba also operates Alibaba.com, which provides e-commerce services for corporate customers. To expand Alibaba.com's overseas operations, in June it opened a U.S. online marketplace named 11 Main.
Individuals and small businesses are not required to pay fees when they sell merchandise on Taobao. They can open shops on the market free of charge. But they have to pay for advertisements and for the e-commerce platform -- big revenue streams for Alibaba.
Alibaba also earns sales and other commissions from businesses that sell via Tmall.
The group also has sites that sell financing, entertainment, cloud computing and other services. Its online empire is so vast it sometimes gets called "the Alibaba economic zone."
Alibaba logged 52.5 billion yuan ($8.55 billion) in sales in the year ended in March, with revenue from e-commerce accounting for 86% of the total. In the April-June first quarter of the current business year, net profit soared 2.8 times from a year earlier, to 12,344 million yuan, on a 46% increase in sales, to 15,771 million yuan.
That economic zone
The Chinese e-commerce market equals about 8% of the country's entire retail market. There is every expectation that China's e-commerce market will further expand.
Individuals played a part in $270 billion worth of transactions on Alibaba during the year through March, accounting for more than 80% of all e-commerce in China. There are 620 million Internet users in China, and as of June 279 million had or were using Alibaba services, an increase of 94 million from a year earlier.
Lately, there has been a noticeable pickup in the number of purchases made via smartphones and other mobile terminals. Alibaba had 188 million mobile users in June, up 15% from March. Of all Alibaba transactions, those made from mobile devices accounted for 33% in the April-June period, up from 27% in the January-March quarter.
Perhaps because of the convenience of mobile shopping, users of Alibaba services are on pace to make an average of 52 purchases this year, up from an average of 49 last year.
As many as 8.5 million companies sell merchandise through Alibaba. They are racking up big numbers. In China, Nov. 11 is known as Singles Day, and last year transactions that day totaled $5.8 billion. According to U.S. news reports, that is more than all online sales in the U.S. on Cyber Monday.
Alipay, an online payment escrow service, is at the center of the Alibaba economic zone. Payments through the system, already a piece of indispensable infrastructure for online services in China, amount to $778 billion.
Then there is Yu'E Bao, which launched in June 2013 and is already gargantuan. Think of Yu'E Bao as an online version of U.S. money market funds, which make short-term investments in highly liquid assets such as commercial paper, basically IOUs that companies sell to one another. Those who trust their money with these funds can almost always count on higher returns than they would get from a bank deposit. And money thus invested is as easy as a bank deposit to withdraw. The same holds true for money entrusted with Yu'E Bao, which with a single click allows Taobao merchants to put their profits with it rather than in a bank.
Many Taobao merchants are making use of Yu'E Bao, where the outstanding balance of assets has reached 570 billion yuan. That makes Yu'E Bao one of the world's biggest funds.
In August, Alibaba introduced a new financial service platform, Zhao Cai Bao, to invest in financial products offered by investment funds and insurance companies. Zhao Cai Bao also acts as an intermediary for loans to individuals and small businesses.
Despite its dominant position in China's e-commerce market, which is roughly divided into consumer-to-consumer and business-to-consumer services, Alibaba does have rivals.
Alibaba's Taobao has captured more than 90% of China's C2C e-commerce market. Tmall commands a 57% share of China's B2C market; JD.com, listed on the U.S. Nasdaq market, trails it at 21%.
As China's B2C market is expected to expand, competition will undoubtedly increase. JD is backed by Tencent Holdings, Alibaba's biggest rival and the operator of the WeChat texting app that has more than 400 million users. Of course, all those chatters are encouraged to shop via JD.
Amazon hangs on to less than 2% of the Chinese market. In a bid to grab more, the big U.S.-based e-tailer has set up shop in the Shanghai free trade zone, where it accepts shipments from the U.S. and then sends out orders to its Chinese customers.
Back to the Alibaba-Tencent competition. The companies' rivalry extends beyond e-commerce. In June, Alibaba decided to make UCWeb, provider of the highly regarded UC browser for mobile devices, into a wholly owned unit by purchasing all of its remaining shares. Alibaba has also invested in Youku Tudou, a top Chinese Internet television company listed on the NYSE, as well as a movie studio, a soccer team and other assets.
Tencent is countering Alibaba. This year it has purchased JD; Dianping, China's biggest restaurant rating site operator; and 58.com, an operator of housing and other information sites.
Alibaba and Tencent are also getting ready to establish commercial banks.
Alibaba's operations are not limited to China; it has invested in video-chat and car-sharing companies in the U.S. as well as a major delivery service in Singapore. The mountain of cash it will raise from its U.S. IPO is highly likely to finance a global acquisition spree. Get ready for the Alibaba economic planet.
Who controls Alibaba?
Alibaba in March announced that it was preparing to IPO in the U.S., abandoning its plan to go public in Hong Kong, where the exchange declined to list the company.
Alibaba asked Hong Kong authorities to permit the issuance of special shares that carry more voting rights than common share so that Chairman Ma and his partners could continue appointing more than half of the board members after listing. The Hong Kong bourse insisted on the one-share, one-vote principle.
Alibaba in June announced a list of 27 partners, including group executives such as Ma, Executive Vice President Joseph Tsai and CEO Jonathan Lu. Of the 27, nine are women, including Chief Financial Officer Maggie Wu.
The partners control the planet-conqueror-to-be, though major shareholders own much bigger stakes.
Japan-based SoftBank, listed on the first section of the Tokyo Stock Exchange, is Alibaba's biggest shareholder. As of June, it held 797.74 million shares, or 34% of all outstanding shares. SoftBank, as well as other investors, put $20 million into Alibaba in 2000, the year after Alibaba's founding, and SoftBank Chairman and CEO Masayoshi Son has since maintained a seat on the Alibaba board. In 2003, SoftBank purchased convertible bonds issued by Alibaba and subsequently converted them into commons shares.
American Internet firm Yahoo is the second largest shareholder, with a 22% stake, or 523.56 million shares. Ma holds an equity stake of 9%; Tsai has 4%.
Son said SoftBank's shares will not be sold during Alibaba's IPO. Yahoo plans to let go of 120 million of its shares.
Alibaba is considering issuing new shares for the IPO. Though SoftBank's ownership percentage will drop if the plan is implemented, the Japanese company will retain the right to appoint a board member as long as it holds a 15% stake.
Ma and Alibaba's history
Ma started a business-to-business site called Alibaba.com with 17 friends in 1999. To counter the advance of U.S. auction service eBay into China, Alibaba in 2003 established Taobao.
In 2007, the company actually managed to list its shares in Hong Kong. But its share price remained weak, and management decided to carry out a tender offer through which it delisted the stock. The coming U.S. IPO is an important face-saving move for Alibaba.
The juggernaut has its registered head office in the Cayman Islands, a British overseas territory in the Caribbean Sea. Alibaba therefore is not qualified to be adopted as a composite issue of the S&P 500; only U.S. companies can join the leading U.S. market index, according to The Wall Street Journal.
Ma conceded the CEO post to Lu in 2013 but remains the symbol of the company. He has never made a purchase on Taobao nor knows how to use Alipay. He has said he fears consequences were he to familiarize himself with the services. What might those consequences be? He could lose the "sense of crisis," he said, that drives him to constantly strive toward improvements.