Alibaba, the huge e-commerce merchant that sounds Middle Eastern but actually is headquartered in China, made financial history Sept. 19 with its record IPO on the New York Stock Exchange.
The $21.8 billion that the e-commerce giant garnered on its first day as a public company easily eclipsed the previous record, $19.7 billion raked in by Visa International, when it went public in 2008. In comparison, Facebook made $16 billion on its IPO in 2012, and Google's 2004 offering earned a relatively modest $1.7 billion.
Alibaba's $232 billion early valuation makes it more valuable, on paper, than eBay (market cap $65 billion) and Amazon ($153 billion) combined.
Alibaba sells a ton of merchandise but more than anything markets mobile devices, cloud services and mobile apps. It wants to sell in high volumes to small and midsize companies in the same way Amazon sells to consumers.
Stock Debuted With a 36 Percent Increase
The stock debuted on the NYSE at $92.70 a share—a healthy 36 percent increase above the IPO price of $68 per share shelled out by institutional investors the previous day. During the first trading day, BABA's price rose to $99, then slipped a bit, ending the session at $93.89 a share, for a 38 percent increase on the day.
Silver Lake Management, the United States' largest IT-focused buyout firm, could be one of the biggest winners as a result of the IPO. The money management firm stands to make more than five times its money in the record-breaking IPO, Bloomberg reported.
Silver Lake ostensibly made a paper gain of about $4.6 billion. The firm and its affiliates invested a total of $825 million in Alibaba during the last six years, including $447 million from Silver Lake’s third buyout fund in late 2011, Bloomberg said, citing an anonymous source because the information is private.
Yahoo was also a big winner Sept. 19. The struggling Sunnyvale, Calif.-based Web search and services provider once owned a 24 percent stake in Alibaba; on Sept. 19, it owned 22.6 percent. After selling a slice to bolster its finances, company will retain 16.3 percent. In the meantime, thanks largely to the escalated 38 percent increase in the stock price in the single day, Yahoo stands to make a total of $8.27 billion on that one portion before taxes.
Founder Was a Former English Teacher
Founder Jack Ma (pictured), 50, a former English teacher who started the company in his Hangzhou, China, apartment (there aren't too many garages there, apparently) in 1999, is being hailed as a new Steve Jobs, Jeff Bezos or Bill Gates. After the stock started trading Sept. 19, he smiled a lot and did the requisite television and radio interviews, and then went off to meetings with folks such as Bill Clinton, Sumner Redstone (Viacom) and Jeff Immelt (GE).
One can bet that this slightly built man will be in demand for quite a while here in the United States, where he wants his company to gain a foothold against Amazon and other online retailers.
"I believed 15 years ago that the Internet was going to change China," Ma said in an interview on Bloomberg News. "And that it would also improve the world. Whether we would succeed or not, we didn't know, but we knew somebody would succeed. I never knew that we would be here today. But I always believed we would be successful."
Reaction to the long-expected Alibaba public offering was generally positive on Sept. 19, although the company's brand recognition still has a long, long way to go in much of the world.
"Alibaba is a massive conglomerate with a huge scale in e-commerce and financial services in China; they are making a lot of money and dominate their market," said Nate Gilmore, vice president of marketing and business development at Shipwire Order Fulfillment, an Ingram Micro Company. Ingram is one of the largest channel companies and systems integrators in the world.
Not Yet a Globally Known Brand
"Comparing it to the size of a joined Amazon and eBay (with PayPal), makes sense because of its dominance in Chinese e-commerce. However, it is not today a global brand with broad horizontal dominance. They have a giant war chest after this offering, so expect it to spread its reach and deepen the moats around its core business. In short, expect some very bold moves and an acceleration to its already aggressive investment strategy.
What does this IPO say to the markets?
"The company's revenue strength and lock on Chinese e-commerce has clearly excited the market. However, the hype machine may be under-appreciating the difficulty that Alibaba might have expanding outside of China, and the lack of transparency that Alibaba will give investors in their governance and potentially the amount of additional shares that could hit the market," Gilmore said. "But today, it's all 'go.'"
Are U.S. investors hesitant about putting money into a Chinese company like this? "Likely some are; but the stock price reflects a desire to get a piece of Chinese e-commerce and get a piece of a brand with global ambitions," Gilmore said.
Several analysts expect Alibaba to go into acquisition mode with its new bankroll of public money. This should make things very interesting for many of the institutional IT companies, because now there's a rich new kid on the block with some real power competing for creative minds and intellectual property.
This kind of competition can only make the IT business world better. Right? Right.