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Alibaba IPO: Coverage From Fast Company
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Wall Street, start your engines: After months of anticipation, the biggest tech IPO of the year—and perhaps of all time—has finally arrived. On Tuesday Alibaba, the Hangzhou-based e-commerce company that dwarfs rivals like Amazon and eBay, filed for an initial public offering in New York.
The event marks a tipping point for China's economy as it matures beyond manufacturing and serves as a harbinger of the increasingly global nature of the sectors in which Alibaba operates, from retail to payments. It also has significant implications for Yahoo, which has struggled to grow outside of its 24% stake.
Join us here as we compile new developments and commentary.
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Play Analyst With This Interactive Tool
Want to understand the assumptions behind Wall Street analysts’ Alibaba valuations? Reuters put together this tool that allows you to arrive at an implied valuation by weighting four different factors and projecting how Alibaba will perform in 2014. Give it a try and tell us your best estimate... -
What Chinese Consumers Buy Online
Mostly apparel. Plus some entertainment and household products. Very little food or health care products. It’s all in this McKinsey & Company report on China’s e-tail revolution.
7gege, which sells women’s clothes, is typical of the new flock of “Tao brands”--shorthand for companies that have used targeted marketing to quickly turn their virtual storefronts into sales juggernauts. As The Economist reported:
The founders of 7gege.com (translated as seven princesses), a women’s fashion firm, tried the bricks-and-mortar route but flopped. They turned to Alibaba’s web portals and found eventual success. The firm now spends up to 100,000 yuan a day on banner ads with Alibaba, as well as money on search optimisation and special promotion days; last year, its online shops on Alibaba earned over 350m yuan.
A quick visit to Taobao or Tmall offers a glimpse of this marketing strategy in action, with ads from Disney and other global brands positioned alongside real estate occupied the Chinese brands born on Alibaba’s platforms.
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Alibaba facilitated the delivery of 5 billion parcels in 2013 vs 4.3 billion packages UPS delivered worldwide. pic.twitter.com/3wak4KBgvu
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Alibaba: We're the "largest online and mobile commerce company in the world"The big numbers are going to keep on coming: each one of Alibaba's 231M active buyers places 49 orders per year.
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What Alibaba’s Many Business Units Do
Banking, e-commerce, maps, cloud computing, music, video production--is there anything that Alibaba Group properties don’t do? The company rules online shopping in China, controlling roughly 80% of a market that grew at a 120% compound annual growth rate from 2003 to 2011. But managing that core business that hasn’t stopped the company from diversifying--just last week, Alibaba announced a new product for crowd-funding Chinese movies and took a $215 million stake in messaging app Tango.You can read more about "All the Western companies you'd have to combine to get something like Alibaba" over at Quartz, which also put together this cheat sheet:
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A total of $248 billion was spent on Alibaba's 3 shopping sites last year, roughly the same as Finland's economy. on.wsj.com/1mzwZJH $by WSJTech via twitter 5/6/2014 9:50:40 PM -
From the archives, our 2007 interview with Alibaba founder Jack Ma: cnnmon.ie/RlnFLiby FortuneMagazine via twitter 5/6/2014 10:09:08 PM -
Who is Jack Ma?
Can you imagine Jeff Bezos hosting a mass wedding for Amazon employees once a year? Probably not. Alibaba founder and chairman Jack Ma, an English teacher turned billionaire, shares the competitive spirit that drives his U.S. contemporary--witness his defiant battle cry in the face of challenges brought by eBay and others--but the stylistic similarities stop there.
Back in 2012 Fast Company went behind the scenes at Alibaba, as well as China-based technology companies Youku (video) and Baidu (search). What did we find? Celebratory clappers, plastic sunflowers, and corporate values infused with Chinese sensibilities around family and teamwork. Read more about “the man who puts the ‘cult’ in Chinese corporate culture.” -
Alibaba just revealed how much money it makes qz.com/206810 http://pbs.twimg.com/media/Bm-2_6-CIAMsVeC.png
by Quartz via twitter 5/6/2014 11:38:14 PM -
I'll bet the Alibaba preliminary S-1 filing is the most popular page on sec.gov right now.
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The "risk factors" section is usually my favorite. Here's the kind of thing you'll find there: "If we are not able to continue to innovate or if we fail to adapt to changes in our industry, our business, financial condition and results of operations would be materially and adversely affected."
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As well as useful financial details like this one:
We primarily derive our revenue from online marketing services, commissions based on transaction value derived from certain of our marketplaces and fees from the sale of memberships on our wholesale marketplaces, and we have experienced significant growth in our revenue. In particular, our revenue grew 72.4% from fiscal year 2012 to fiscal year 2013, and 56.6% from the nine months ended December 31, 2012 to the nine months ended December 31, 2013.
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One unanswered question: Will Alibaba list on the New York Stock Exchange or Nasdaq? As Bloomberg's Sam Mamudi writes:
For both exchanges, there’s more at stake than the right to brag about hosting what could be the largest U.S. IPO. A victory for IntercontinentalExchange Group (ICE) Inc.’s NYSE would underscore how it’s undermined Nasdaq OMX Group (NDAQ) Inc.’s former dominance over technology company listings. Nasdaq can show it’s moved past the technical errors that plagued Facebook Inc.’s debut on that market in 2012 and contributed to Twitter Inc.’s choosing NYSE for its listing last year.
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This chart, from the filing, shows Alibaba's sweet spots compared to overall consumption in China.
Breakdown of consumption in China
(% total consumption expenditure in China, 2013)
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Alibaba processed $5.8 billion in transactions on Singles Day last year. In addition to being China's biggest online shopping day, Singles Day is literally a holiday for people who lack a steady romantic partner. The holiday's origins are mythical--one popular origin story gives special significance to numbers, as is the Chinese way:...once there were four single men, leading very boring lives. None of them were married, or had lovers, or did anything exciting. They just sat around all day and played Mahjong.One day they played Mahjong from 11 in the morning until 11 at night. During the game, no matter who won, the winning card was always the 'four columns' card (the card shows four independent, parallel columns in two lines). Even more of a coincidence, it was Nov 11, or 11/11. In order to commemorate the day, they nicknamed it Singles Day.Singles Day was first celebrated at various universities in Nanjing, capital city of Jiangsu Province during the 1990s. It got the name Singles Day because the date is comprised of four "ones". These college students have since graduated, and carried their university tradition into society. Singles Day is now a special day for all fashionable youths.Regardless of the holiday's origins, one thing is clear: Alibaba has successfully co-opted it in the name of cold, hard cash--last fall Alibaba processed a whopping 254 million orders on Singles Day. That must have warmed even the loneliest hearts at the ecommerce giant. -
The filing notes that last year "per capita retail space in China was 0.6 square meters, which was significantly lower than that in the United States, the United Kingdom, Japan and Germany, according to Euromonitor International."Alibaba says that what China lacks in powerful physical chain stores is one of the company's key market advantages. As the company writes in its filing:China’s offline retail market faces significant challenges due to few nationwide brick and mortar retailers, an underdeveloped physical retail infrastructure, limited product selection and inconsistent product quality. These challenges in China’s retail infrastructure, which we believe are particularly acute outside of tier 1 and 2 cities, are causing consumers to leapfrog the offline retail market in favor of online and mobile commerce.
China’s retailing industry, coming of age in an era of digital disruption, will probably follow a trajectory different from that of retail sectors in other markets. In developed nations, the industry typically followed a three-stage path. It began with the rise of regionally dominant players. This field then consolidated into a smaller number of national leaders. Eventually, online players challenged them, and the industry became multichannel. Some brick-and-mortar players (Tesco and Wal-Mart Stores, for instance) have embraced a multichannel strategy, while others (such as Borders in the United States and Jessops and Woolworths in the United Kingdom) have been driven from the market.China differs from these developed markets, however, because a crop of national leaders has yet to emerge in traditional retailing. Building stores across China’s considerable geography, with its many smaller cities, takes both time and high levels of investment. As a result, China’s largest brick-and-mortar retailers have captured a smaller share of the country’s overall retail market than have major players in the United States and elsewhere: the top five retailers by category hold less than 20 percent of the market—much lower than US levels of 24 to 60 percent in comparable categories.In China, the combined effects of the complexities of store expansion and a distinctive model of e-tailing could lead to a different retail dynamic: as e-tailing continues to grow, China’s industry may leapfrog the second (national) stage, passing directly from the regional to the multichannel one. In fact, China’s online ecosystem of marketplaces and agile support services has grown rapidly precisely because it can exploit the inefficiencies and higher costs of China’s existing retail market. Already, the major online companies Alibaba (which owns marketplaces such as Taobao) and 360buy.com (focusing on sales of electronics) have established a prominent national role, ranking among China’s top ten retailers. -
Beware: Alibaba isn't audited the way a US company is audited. http://pbs.twimg.com/media/Bm_GTcvCMAAdw03.png
by Matt Phillips via twitter 5/7/2014 1:02:05 AM -
Alibaba is worth a mere 6 WhatsApps. twitter.com/RolfeWinkler/s…by mims via twitter 5/7/2014 1:04:08 AM -
Why Hong Kong Lost The Battle For The Listing
The New York economy stands to gain $1.1 billion in fees related to the offering, according to financial analysts at Privco--dollars that could have gone to Hong Kong, where Alibaba.com conducted its first public offering seven years ago. (How times have changed for technology companies--that 2007 offering raised $1.7 billion, an amount in the same ballpark as this offering’s fees.)
It’s a win for Wall Street, but not everyone is declaring victory. Alibaba passed over Hong Kong because its exchange is one of the few remaining in the world that does not allow dual classes of stock. The New York exchanges, in contrast, have welcomed with open arms companies that want to give executives and other select shareholders unequal voting rights.
When everyone from Berkshire Hathaway to Facebook is playing the dual class game, surely it’s a good idea? Maybe not. This Bloomberg View editorial raises serious concerns about the trend--“unequal voting rights simply allow bad managers to avoid accountability”--and points to research and performance data that back up its argument.
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The partners who control Alibaba are anonymous and all-powerful qz.com/206943 via @qzby MaxNisen via twitter 5/7/2014 12:37:34 PM -
Yahoo plans to sell 40% of its stake in Alibaba through the IPO--and stands to gain $10 billion in cash as a result. With that cash burning a hole in her pocket, what will Yahoo CEO Marissa Mayer look to buy?
Yahoo could look at purchasing public companies including AOL Inc., which may help deliver sales growth, [BGC Partners analyst Colin] Gillis said. Mayer may also add to her string of startup acquisitions with Web companies that can generate more visitor traffic, he said.
On the startup side, other analysts have floated ideas like Pinterest and Snapchat. -
Will Alibaba Group's IPO be the biggest in history? To earn that distinction, the company would have to beat out Facebook, General Motors, Visa, and more:
Source: Bloomberg -
49-year-old Alibaba founder Jack Ma is a former English teacher. He started the company in his Hangzhou apartment 15 years ago with $60,000 his friends pooled together for him. Ma certainly has experienced his share of failure--at one point in his life, he was rejected from a job he applied to at Kentucky Fried Chicken.
In 1995, I went to Seattle...My friend said Jack, 'This is internet.' And I have never heard about the internet and never used the computer before that day. My first time in my life I used the internet, I touched on the keyboard and I find well -- this is something I believe; it is something that is going to change the world and change China.
-- Jack Ma -
Alibaba has good reason to be eyeing a record-setting IPO. Unlike many tech companies making their public debut, it’s raking in revenue in the world’s biggest consumer market.
To give you a sense of the scale: In 2012, Alibaba contributed nearly 2% of China’s GDP. Walmart, the closest domestic equivalent in terms of scale, accounted for just 0.03% of U.S. GDP.
Or to frame it another way: On “Singles Day” last November, the Chinese equivalent of Cyber Monday, Alibaba processed $5.6 billion in sales. In the U.S., Cyber Monday sales--for all online retailers--totaled $1.7 billion. -
Amid the Alibaba IPO hullaballoo, Yahoo is down 6.19% - doing worse than Twitterby tomcheshire via twitter 5/7/2014 2:31:50 PM -
A huge Alibaba payday is going to mean a test for Marissa Mayer and Yahoo executives nyti.ms/1jdxZQiby nytimesbits via twitter 5/7/2014 2:49:32 PM -
Kicker: Alibaba's cloud infrastructure throwaway line item rev number is almost the same size as Box's TTM top line. Ok.by alex via twitter 5/7/2014 3:19:57 PM -
Understatement of the F-1, from the "challenges" listed by Alibaba Group: "the regulatory and legal system in China is complex and developing."
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Alibaba has fast growth, but a risky corporate structure, says the NYT's Deal Professor. nyti.ms/1jb5aEbby Vindu Goel via twitter 5/7/2014 4:13:46 PM -
Alibaba in 1Q 2014: higher profits and stronger revenue growth than eBay, Amazon:
Source: The Wall Street Journal -
How did Alibaba get its name? Founder Jack Ma liked the story of Ali Baba and the Forty Thieves as a metaphor for the site's value proposition:
"Alibaba is a kind, smart business person, and he helped the village," he said. "Alibaba opens sesame for small- to medium-sized companies."
Fun fact: According to USA Today, "Ma had originally thought of calling it Ali Mama, as Baba is the Chinese word for father, but decided against it." -
Talk about a home run: SoftBank Capital, the only U.S.-based venture capital firm listed as a principal shareholder, has invested $100 million in Alibaba Group and today owns 34% of the company. With conservative estimates valuing Alibaba at $150 billion, you can bet that Softbank's small team is basking in the glow of the $49,900,000,000-plus likely headed its way.
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Jo Ling Kent reports that Alibaba will be appointing six new members of its board of directors between now and listing day--as yet no word on who will make the cut.
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The SEC could stop the Alibaba IPO over an auditing issue: bv.ms/1s3ItSH via @BVby Paula Dwyer via twitter 5/7/2014 6:57:02 PM -
CEO Marissa Mayer says Yahoo's game plan is to be "good stewards" of any windfall from Alibaba's IPO cnet.co/1isq3Wjby CNET via twitter 5/7/2014 7:29:02 PM -
One interesting distinction between Alibaba and its U.S. counterparts, online and offline, ties to the idea of delivering value. Alibaba says its mission is "to make it easy to do business anywhere"--a notion of value that has to do with trust and efficiency more than anything else. In contrast, Amazon and Walmart both define their value to customers in terms of price:
- Amazon aspires “to be Earth’s most customer-centric company, where customers can find and discover anything they might want to buy online, and endeavors to offer its customers the lowest possible prices."
- Walmart quite simply wants to "save people money so they can live better."
In the U.S., where business transactions are generally marked by trust and efficiency, competing on price is a critical way to differentiate. In China, where the business infrastructure is still developing, price is perhaps a secondary consideration. -
Mixing Business and Pleasure: Yahoo bought a 40% stake in Alibaba for $1 billion back in 2005, but the relationship between the two tech companies predates that deal by years. Founder Jack Ma met Yahoo co-founder Jerry Yang while the American was visiting China as a tourist, according to The New York Times:
Seven years later Alibaba bought back half of that stake for $7.1 billion, and today Yahoo owns about a quarter of the company.[Ma] worked briefly in Beijing for the Ministry of Foreign Investment and Trade in a for-profit e-commerce venture. It was there that he made his first contact with Yahoo, when he gave a co-founder, Jerry Yang, a tour of the Great Wall in 1998, and the two became friends.
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The word “government” appears 107 times in Alibaba’s IPO filing. Was used 12 times in eBay’s, just six in Amazon's macleans.ca/economy/busine…by Jason Kirby via twitter 5/7/2014 9:05:52 PM
