Alibaba files for giant IPO

The long-awaited filing for Alibaba Group’s initial public offering happened Tuesday, and the Chinese Internet giant will likely be valued at $100 billion.

The Wall Street Journal had this story by Juro Osawa, Telis Demos and Rolfe Winkler about the company’s value:

Chinese Internet giant Alibaba Group Holding Ltd. officially filed plans to offer shares in the U.S. in a deal that would value the company at more than $100 billion, confirming the scale of its e-commerce operations ahead of what is expected to be one of the largest stock listings in history.

The filing showed that Alibaba is growing quickly and is very profitable, though it didn’t break out the performance of its various businesses.

Revenue climbed 57% in the final nine months of last year, and Alibaba kept more than 43 cents of each dollar of revenue as net income.

Alibaba valued itself at roughly $109 billion in April, based on disclosures in the document about the numbers of shares outstanding and its internal estimate of the value of each share.

Including stock-based compensation and the conversion of certain preferred shares, the valuation is $121 billion.

Both figures exclude the value of any shares Alibaba will sell in its initial public offering.

But the amount of money it wi’ll try to raise will remain a secret, Forbes reported in a story by Ryan Mac and Brian Solomon:

For now, the exact size of the IPO remains closely guarded. Though many expect the company to raise more than $15 billion in a public offering that may still be months away, the company used a $1 billion placeholder on its registration papers with the Securities and Exchange Commission. That number is just being used to compute filing fees, said a spokesperson for the company. Alibaba also did not include details on how many shares it would be selling or its valuation in its paperwork, though those details will be disclosed in the days leading up to the IPO.

Founded in 1999 by former English teacher Jack Ma, Alibaba has expanded beyond its original blueprint as a web marketplace for Chinese companies. Having benefited from rapid economic growth within the country over the last decade, Alibaba has developed an all-encompassing retail ecosystem that ranges from payment systems to cloud computing services all with the purpose of supporting its main e-commerce plays including Taobao Marketplace and Tmall.

As of the end of December, the company had 231 million active buyers on its site, up 44% from the previous year. Alibaba also showed a strong position among mobile users, accounting for more than 75% of all Chinese retail done on mobile devices with 19.7% of its business coming from phones or tablets.

William Alden detailed the many risk factors of investing in Alibaba for the New York Times. Here are a couple:

The prospectus for the I.P.O., which was filed on Tuesday, contains 38 pages outlining many of the risks that the company is disclosing to would-be investors. Such disclosures are fairly standard, intended to insulate companies from shareholder lawsuits if the investments go sour. But others are particular to Alibaba and reflect a different set of corporate governance standards than those at many American firms.

Among the many risks listed, prospective investors are warned about the Chinese government, Alibaba’s corporate structure and even the threat of a natural disaster.

A few of the notable risk factors outlined include:

* Because it is a foreign company, Alibaba plans to rely on exemptions from certain corporate governance requirements under the New York Stock Exchange and the Nasdaq. For example, the company said it was not required to have a majority of its board be independent, to have a compensation committee made up of independent directors or to adopt and disclose a code of ethics for directors and officers.

* Alibaba also said that it did not have to file reports and financial statements with the Securities and Exchange Commission “as frequently or as promptly” as American companies. “As a result, our shareholders may be afforded less protection than they would under the Exchange Act rules applicable to domestic U.S. companies,” the prospectus said.

Even if they’re not filing financials at the same time as U.S. companies, at least one U.S. firm stands to gain from the sale – Yahoo. Vindu Goel wrote about Yahoo’s gains for the New York Times:

For Yahoo, the initial public offering of stock in the Alibaba Group will unlock the door to a giant trove of cash. Depending on the price of the deal, Yahoo most likely will receive $10 billion to $15 billion for the 9 percent stake in the Chinese e-commerce company that it is required to sell in the offering.

The I.P.O. will also bring an end to the long honeymoon of Yahoo’s chief executive, Marissa Mayer. Since she was hired in the summer of 2012, investors have paid little attention to her efforts to revive the fading Internet company and instead focused on what would happen with Yahoo’s longstanding investments in Alibaba and Yahoo Japan.

At Yahoo’s current stock price of $36.49, some analysts say, investors are basically buying those foreign investments and getting Yahoo’s core operations free.

When Alibaba begins trading as a public company, however, that crutch will disappear. Ms. Mayer will then have to prove to Wall Street that she has a viable plan to save Yahoo and will use the Alibaba windfall wisely.

The real unknown here is just how high the price will go. Despite all the risk factors, investors have been waiting for this IPO for a while and will likely have no qualms about putting their money in the Chinese company.