Alibaba, a Chinese e-commerce company, raise $20BILLION with US IPO

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Alibaba is an online e-commerce site that controls 80 percent of all online sales in China
It oversaw $248billion in transactions last year - more than Amazon.com and eBay combined
The company was founded by CEO Jack Ma in his apartment in 1999
Experts say its IPO is likely to fetch between $15 and $20billion, potentially more than Facebook or any other US IPO
Alibaba operates like a middleman - connecting hundreds of millions of buyers and sellers in China
It could be valued up to $250billion - as much as Wal-Mart

Published: 01:55 EST, 7 May 2014 | Updated: 11:04 EST, 7 May 2014

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Alibaba, a Chinese online retailer that was virtually unknown outside Asia just a few years ago, is preparing an initial public offering that could be the largest opening stock sale in U.S. history - raising up to $20billion, according to some estimates.

The company, founded by charismatic CEO Jack Ma in his apartment in 1999, controls 80percent of all online commerce in the world's second-largest economy. And it's gearing up to conquer the American market next.

Alibaba Group Holding Ltd. handled more than 1.5 trillion yuan - about $248 billion - of transactions for 231 million active users across its three main Chinese online marketplaces in 2013, more than Amazon and eBay Inc combined. It did so with 20,884 full-time workers, fewer than eBay.

'If it's able to transport that kind of power to outside China, it has the potential to become a true global e-commerce powerhouse,' said Roger Entner, lead analyst and founder of Recon Analytics.

Charismatic: Jack Ma, the CEO of Alibaba, founded the company in his basement in 1999 and still controls the vast majority of the growth and operation

'Everybody thought Amazon could do it, but now we have to re-think Amazon in the light of being the most successful company in that field in the U.S. - but not in the world.'

The company already has a toe-hold in the U.S. - investing hundreds of millions of dollars in tech startups and gaining key board seats in Silicon Valley. From that vantage point, it can plot its entry into the American consumer market.

'They can't grow in China forever,' said Fiona Dias, chief strategy officer at Shoprunner.

'They're certainly not going to be invited to play in Amazon or eBay's sandbox,' she said. 'But in an indirect way they can learn and observe from hundreds of large retailers.'

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While the Alibaba brand is less well known in the United States than Internet companies such as Amazon.com and Facebook, the Chinese company's listing has stirred the most excitement in Silicon Valley and Wall Street since Facebook's record IPO. Alibaba will become the largest Chinese corporation to list in the U.S. - on either the New York Stock Exchange or the Nasdaq.

Estimates of the total valuation of the company vary widely. The company itself said it was worth $109billion in a filing in April. However, analysts estimate its market capitalization could ring in between $136billion and $250billion.

Dominant: Alibaba has taken over 80percent of e-commerce sales in China - all with fewer employees than eBay, less than 30,000

Facebook is valued at $116billion. Wal-Mart has a market cap of about $252billion.

Alibaba operates a sprawling e-commerce business that works more like eBay than Amazon.com. It plays middle-man, taking a little off the top of hundreds of millions of product sales - and even financial transactions.

It operates a slew of websites, all designed to facilitate sales between different groups of buyers and sellers. Alibaba.com is a business-to-business site that specializes in connecting small businesses with wholesale suppliers. Taobao is a peer-to-peer sales site, similar to eBay. Tmall.com connects retailers with customers - providing a virtual mall where sellers can set up shop and attract buyers.

ALIBABA COULD BE THE BIGGEST US INITIAL PUBLIC OFFERING EVER

Analysts predict that Alibaba's IPO could generate $15billion to $20billion. The latter figure would make it the biggest initial stock sale in US history - and much bigger than Facebook.

Here are some of the biggest US IPOs:

Visa, 2008 - $19.7billion
General Motors, 2010 - $18.1billion
Enel (Italian utility company), 1999 - $17.4billion
Facebook, 2012 - $16billion
Deutsche Telekom (T-Mobile), 1996 - $13billion
AT&T, 2000 - $10.6billion
Kraft Foods, 2001 - $8.7billion
France Telecom, 1997 - $7.3billion

Other tech IPOs:

Google, 2004 - $1.92billion
Twitter, 2013 - $1.8billion
Groupon, 2011 - $800million
LinkedIn, 2011 - $406million
Amazon.com, 1997 - $54million

It also operates the largest online financial transaction site in China, Alipay - which allows individuals to send money to people and businesses. In 2012 online, it did $660billion in transactions between 300million users.

Alibaba recently launched a cloud computing and storage service, as well.

The company's prospectus says it hopes to raise $1billion in the stock sale, though analysts say that figure will certainly go much, much higher.

The prevailing wisdom is that the company will raise more than $15billion - rivaling the $16billion that Facebook's IPO raised in 2012. However, some experts say that Wall Street - hungry to tap into a dominant company in the Chinese market, could drive the sale up to $20billion, which would make it the largest initial stock offering in U.S. history.

The current record holder is financial services company Visa, which raised $19.7billion when it went public in 2008.

The bulk of the proceeds will go to Yahoo Inc - which bought a 40 percent stake in Alibaba in 2005 for $1 billion and which must sell more than a third of its current 22.6 percent stake through the IPO.

Alibaba also plans to sell new shares, people familiar with the plans have said, to bulk up a cash war chest depleted by a rash of recent acquisitions.

Alibaba will debut later this year in a market where high-flying tech stocks like Twitter and Amazon have fallen in recent weeks in a sell-off that has divided analysts and investors, reviving doubts about soaring tech valuations.

Still, estimates of Alibaba's market value have soared in recent months, to even beyond $200 billion, underscoring Wall Street's eagerness to take a crack at a massive Chinese company with robust growth.

Alibaba did not give any hints in its IPO prospectus about potential plans for the U.S. e-commerce market. Analysts said it was unlikely Alibaba would adopt the model favored by Amazon, which sells goods directly to consumers using a sprawling network of warehouses.

AT LEAST 102 YEARS

Alibaba, founded 15 years ago in a one-room apartment in Hangzhou and controlled by a 28-member partnership, boasts of building a company that will last "at least 102 years."

After the IPO, Alibaba said, the partnership will have the exclusive right to nominate a simple majority of the members of its board of directors.

Alibaba operates an online messaging service as well as a cloud computing business, but more than 80 percent of its revenue comes from its Taobao, Tmall and Juhuasuan online marketplaces. Top items sold on Taobao include prepaid phone and game cards as well as lottery tickets, home furniture and baby products, the company said.

Middle-man: Alibaba released this info graphic explaining its business model. It operates several sites that connect buyers and sellers in China

Total revenue increased 62 percent to 18.75 billion yuan ($3.01 billion) in October-December of 2013 from a year earlier, while net income more than doubled to 8.27 billion yuan, according to the prospectus.

Some analysts say Alibaba's rapid pace of revenue growth may be unsustainable.

'They can't grow in China forever.'

Fiona Dias, chief strategy officer at Shoprunner

'They got into the e-commerce space when there weren't any other players in China,' said Forrester analyst Kelland Willis, adding Alibaba has been 'losing market share year over year.'

By 2020, online retail sales in China will reach $420-$650 billion, as much as the United States, Japanese, UK, German and French markets combined, according to a recent analysis by McKinsey Global Institute.

MOBILE FUTURE

Alibaba said China's mobile Internet arena, where it is battling Tencent Holdings for supremacy, is the next growth industry. China will have an estimated 750 million mobile Internet users by 2017, according to data from China-based consultancy iResearch.

Roughly one-fifth of all purchases in the last quarter of 2013 were made on mobile devices, up from 7.4 percent a year earlier. But Alibaba added that for now these sales were less profitable than those made on its website.

Already this year, Ma has been involved in acquisitions worth more than $3.5 billion - buying a stake in department store operator Intime; a majority shareholding in movie producer ChinaVision Media; control of online mapping firm Autonavi; a stake in China's Wasu Media Holding Co Ltd for online content and internet TV; and a stake in Youku Tudou Inc, an online video business akin to Google Inc's YouTube.

Massive: The company handles more than 11.3billion orders from 231million users in 2013

Alibaba is also launching a U.S. e-commerce website, 11 Main, and has taken stakes in U.S. retail site ShopRunner Inc, Lyft, a U.S. ridesharing service, and 1stdibs, an online market place for antiques and luxuries.

Also this year, Ma has set up a charitable trust estimated to be worth $3 billion, potentially Asia's biggest, focusing on the environment and health. 'It's impossible for me to be a doctor, but I can have my own way to save lives,' Xinhua quoted Ma as saying.

OWNERSHIP AND RISKS

Some analysts have pointed to a less-than-transparent decision-making process after Alibaba spun off fast-growing Alipay in 2010 - a move that caused consternation at major shareholders Yahoo and Japanese telecoms firm SoftBank Corp.

Alibaba's prospectus also laid out a raft of regulatory risks it faces at home. The company stressed that Beijing could impose additional restrictions on the use of Alipay, the payment service that powers the majority of its online transactions.

Alibaba oversees more sales than Amazon.com and eBay combined

Unlike many prominent U.S. tech IPOs of recent years, Alibaba's list of significant shareholders is short. By contrast, Facebook and Twitter each broke out shareholdings from more than a half dozen individual principal shareholders.

Former English schoolteacher and lead founder Jack Ma owns 8.9 percent of Alibaba. Joseph Tsai, a co-founder and executive vice-chairman, is the only other individual with a disclosed shareholding, of 3.6 percent. Yahoo and SoftBank, respectively, own 22.6 percent and 34.4 percent of Alibaba on a fully diluted basis.

The proposed IPO of $1 billion in the filing is an estimate for calculating exchange registration fees.

FAIR VALUE

Alibaba estimated its fair value as of this month could reach $50 per share, an increase of more than six times from the $8 a share value estimated in June 2011, according to the prospectus. This calculation helps determine employee compensation and does not necessarily represent a likely IPO price.

At the most recent fair value estimate, Yahoo's stake in Alibaba is worth $26.2 billion and SoftBank's almost $40 billion. Ma's stake would be worth $10.3 billion.

The fair value estimate puts Alibaba's size at $116.1 billion, well below the $152 billion average from 25 analysts in a Reuters survey.

While Yahoo and SoftBank may be among the biggest beneficiaries of the IPO, neither will exercise much control of Alibaba. It has already been agreed that Yahoo Chief Development Officer Jacqueline Reses will resign from Alibaba's board upon the listing, while SoftBank will have the right to nominate just a single director to a new, nine-member board.

Alibaba's decision to list in the United States was a blow to the Hong Kong stock exchange, which was initially its preferred IPO venue, but the city's regulators balked at any potential violation of the 'one-share-one-vote principle.'

Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, and Morgan Stanley will underwrite the Alibaba IPO.

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welshy, swansea, United Kingdom, 12 minutes ago

The only reason why this company is big and rich is because china wouldn't let any big western companies in its country! Let's do the same!!

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Pasha, Beverly Hills, United States, 13 minutes ago

Alibaba they promote a base for manufacturers in china and india. however Aliexpress is the consumer version for Alibaba One of my favorite go too sites. Alibaba is a great name for an internet site. Abra Cadabra. "Can I get magic carpet service please? "Hi, I'm your order genie, how can I help you today?". The thing to know about any IPO : only the insiders and banks always profit. For small investors : buyer beware, especially as this is a Chinese company.

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welshy, swansea, United Kingdom, 14 minutes ago

The only reason it's bit and rich is because china wouldn't let amazon or any other big western company in the country! Just do the same with this company!

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LilPipsqueak, Baltimore, United States, 16 minutes ago

And so...it begins...

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PPerkins, Abq, United States, 29 minutes ago

I always hated when I was looking for something and only alibaba had it. It never made sense to me, and I felt like it was either knock off or I wud pay and never receive my goods. Idk I never gave it a chance, maybe I was wrong.