Coverage: Alibaba shows more of its hand

Alibaba is getting ready for what may be the world’s largest initial public offering, and the Chinese search engine unveiled more of its structure in a filing Monday.

Michael J. de la Merced had this story for The New York Times about who actually owns the company:

For weeks, potential investors have wondered who would be in the select inner circle running the Alibaba Group, the Chinese e-commerce giant.

On Monday, the company publicly disclosed the names of all 27 individuals for the first time, as part of its amended initial public offering prospectus. Among them are several members of its senior management team.

And the company showed another jump in profitability in its latest fiscal quarter.

The revised document is the latest step Alibaba has taken on the road to its highly anticipated market debut, which is on track to become one of the biggest in corporate history. The process has slowly revealed more information about one of China’s biggest Internet players, especially as it continues to battle for dominance against online rivals like Tencent.

The identities of the partnership had been one of the biggest questions since Alibaba first filed to go public last month. The individuals, led by Jack Ma, a company founder, will essentially control the online market operator through their ability to nominate a majority of directors.

The Wall Street Journal story by Juro Osawa, Paul Mozur and Telis Demos pointed out the new financial figures that were disclosed, indicating the company’s margin are under pressure:

Alibaba also released new financial figures that showed the company’s margins were under pressure—falling to 45.3% in the quarter ended in March from 51.3% a year earlier—due to rising spending to attract mobile users.

The broader disclosure in the amended filing, which was released as part of a back-and-forth with U.S. securities regulators prior to the IPO’s approval, is aimed at making sure global investors are comfortable with Alibaba, which is a household name in China but relatively unknown in the West. That’s particularly important because the offering could raise $20 billion or more, making it one of the largest in history.

Yet some investors say there are plenty of questions left, from how much the company charges merchants for marketing and advertising on its site, to guidance on acquisition and spending plans.

“Spending is the key question going forward,” said Jeff Papp, senior analyst at Oberweis Asset Management, which manages the $189 million China Opportunities fund. “It’s simply a matter of how much, and what that spending does to margins over time.”

The Bloomberg story by Leslie Picker, Lulu Yilun Chen and Jonathan Browning pointed out the numbers are spooking investors, including those in Yahoo, which holds a 23 percent stake in Alibaba:

Yahoo fell 5.8 percent to $34.81 in New York trading yesterday.

Investors have been awaiting additional details as they weigh whether or not to buy shares in Alibaba’s IPO — which could be the largest ever in the U.S. The three months through March generally contribute the smallest portion of Alibaba’s annual revenue, in part due to the beginning of the Chinese New Year, according to the filing.

Alibaba’s efforts to attract mobile users to its websites is a key plank of the company’s growth strategy. The company said in the filing that it expects mobile transactions as a percentage of the total to continue increasing, as more shoppers use smartphones to purchase items online.

Mobile revenue as a percentage of total sales increased to 12 percent in the three months through March from 2.2 percent in the same quarter last year, the filing shows.

For the year through March, Alibaba’s net income rose to about 23.1 billion yuan ($3.7 billion), compared with 8.4 billion yuan a year earlier. Revenue rose 52 percent to 52.5 billion yuan during the year, with much of that gain coming in the quarter that ended in December, which included a promotion day that drove sales at Alibaba’s retail marketplaces.

Slate’s Alison Griswold had these stats about the Internet giant’s stats:

To refresh quickly, Alibaba is a Chinese e-commerce giant that does more sales than Amazon and eBay combined; in China, the name Alibaba is all but synonymous with online shopping. The company processed 11.3 billion orders from 231 million active buyers on its China retail marketplace in 2013 alone. Its payment volume of $519 billion on Alipay that year crushed PayPal’s $180 billion. On its bizarre factory-direct marketplace, customers can test their wits as they dodge scams and hunt for the best $40 mattress possible. The upcoming IPO could value Alibaba between $150 billion and $200 billion.

The 27 individuals named to the “Alibaba Partnership” include founder and executive chairman Jack Ma, chief executive Jonathan Lu, and chief financial officer Maggie Wu. Four of the partners—including Ma—will also sit alongside Yahoo co-founder Jerry Wang as board directors. The 27 partners have the power to nominate more than half of the directors on Alibaba’s board.

The Economist story pointed some of the remaining questions the filing didn’t answer:

In the end, investors are likely to be pleased by the firm’s willingness to embrace transparency (if not necessarily shareholder empowerment). However, three questions remain unanswered. One is about demand for Alibaba shares and their price. Analysts speculate that the flotation could raise some $20 billion, and value the firm at over $150 billion. Another is which exchange in New York will win the coveted flotation. The Nasdaq may be the more natural home for technology shares, but given how the exchange botched Facebook’s flotation the current betting is that the New York Stock Exchange may come out on top.

Yet the biggest open question is when exactly the flotation will happen. The firm refuses to give a precise date, saying only that it is likely to happen at the end of summer. However, wags are confident it will happen on August 8th: “eight eight” is pronounced ba ba in Mandarin. Investors will be hoping there are no black sheep in sight.

And it seems the Economist said it best. While the filing revealed several key details about ownership and structure, investors will still be looking to see what the company will demand in terms of valuation and if it will be affordable.