Well, it doesn’t get more exciting than this – the biggest initial public offering in the history of initial public offerings was sold tonight. Alibaba, the Chinese online retailing giant, raised billions of dollars. And everyone had something to say about it.
Leslie Picker had this story for Bloomberg:
Alibaba Group Holding Ltd. (BABA), the e-commerce company started in 1999 with $60,000 cobbled together by Jack Ma, cemented its status as a symbol of China’s economic emergence by raising $21.8 billion in a U.S. initial public offering.
The company and shareholders including Yahoo! Inc. (YHOO) sold 320.1 million shares for $68 each, according to a statement, after offering them for $66 to $68. The sale — which values Alibaba at $167.6 billion — is already the largest by any company in the U.S. and has the potential to break the global record if additional shares are sold to underwriters.
Ma, a former English teacher who started the company in his Hangzhou apartment, drew crowds of money managers to meetings held around the world as the company pitched itself to investors. Alibaba profited from China’s burgeoning consumer class by dominating the e-commerce industry in the country of 1.36 billion people.
Reuters’ Liana B. Baker reported that despite the fact many Americans don’t know anything about the company, the demand for shares was strong:
An Ipsos poll conducted for Thomson Reuters found that 88 percent of Americans had never heard of the Chinese e-commerce company, which is responsible for 80 percent of online sales in the world’s second largest economy and works with a number of businesses there including consumer online marketplace Taobao and payment service Alipay.
But that didn’t sap enthusiasm among multiple large U.S. institutions, including Blackrock, which put in orders for allocations of at least $1 billion in shares, according to the sources.
Between 35 and 40 institutions placed orders for $1 billion or more shares each, investors briefed on the matter said.
Keen to buy into China’s rapid growth and evolving Internet sector, investors have been clamoring to get shares since top executives at Alibaba, including Ma, kicked off the road show last week.
“It was one of the more impressive IPO presentations,” said Jerry Jordan, manager of the $48 million Jordan Opportunity Fund. “I didn’t realize just quite how successful they are.”
The New York Times reported in a story by Peter Eavis that many were attracted to the company’s name and profits:
For many, the allure of Alibaba is in its headline numbers.
Alibaba makes most of its revenue from fees and commissions that it receives from the two large Internet marketplaces that it operates in China. Taobao is a frenetic and eclectic online bazaar that offers a huge range of goods. Tmall, by contrast, is a more refined platform that established brands use to sell their goods. Together, Alibaba’s marketplaces sold $296 billion worth of goods in the 12 months through the end of June, which is estimated to be more than Amazon and eBay combined.
Facebook’s public offering faltered in 2012 when it became clear that the company did not yet have a strong footing in mobile devices. But Alibaba appears to be handling the retailing transition to mobile devices. In the second quarter of this year, mobile accounted for a third of the value of goods sold on Alibaba’s Chinese marketplaces, up from 12 percent in the same period a year earlier.
Alibaba is also reaping enormous profits from the torrent of commerce that takes place on its websites. In the second quarter, it made 43 cents of operating profits for every dollar of revenue, a staggering margin for a large, fast-growing company. Sometimes, outsize margins can be an indicator that a firm is somehow managing to overcharge — an advantage that might lessen as competition increases. But investors assert that the fees and commissions that Alibaba charges its sellers seem to be in line with those of its rivals.
Victor Luckerson wrote for Time that investors are mostly interested in owning a piece of the Chinese technology market:
Investors are also excited because Alibaba offers the most direct way to own a piece of China’s booming tech scene. The Internet population in the country is expected to reach 800 million by next year, according to government estimates, making it the largest market of online users by far. Tencent, another Chinese tech giant, offers many services that compete with Alibaba’s, but it’s traded on Hong Kong’s stock exchange. With Alibaba on the New York Stock Exchange, it will be easier for U.S. residents to invest in the company.
Jena McGregor of The Washington Post reported that the company does have a unique ownership structure:
Alibaba Group has an unorthodox approach to governing itself. In filings, it writes that the company has acted like a partnership in many ways since its founders first got together in Jack Ma’s apartment in 1999. As a result, in 2010 it established the “Alibaba Partnership,” a now 30-member steering committee made up of managers at Alibaba Group and related companies. Alibaba says this arrangement allows executives to focus on the long-term, collaborate better and “override bureaucracy and hierarchy.”
In filings, the company also noted it sees this as a better alternative to dual-class share structures, which have been used in other tech giants. In those, votes by shareholders (often founders) who own a certain class of stock carry a disproportionate weight. Alibaba has argued its structure “is designed to embody the vision of a large group of management partners. This structure is our solution for preserving the culture shaped by our founders while at the same time accounting for the fact that founders will inevitably retire from the company.”
Yet while those Alibaba managers in the partnership don’t have outsized votes, they do have a very special privilege: They get to nominate a majority of the company’s governing body, its board of directors.
The real story will be in a couple of years to see if the company lives up to the growth prospects put onto it by investors. It will also be interesting to see if the company’s management structure is one that investors can live with long-term. Either way, it’s an impressive capital raise – one for the record books.
