Investors worldwide will be watching closely when Alibaba floats on the New York Stock Exchange this week. The Chinese e-commerce giant plans to price its shares in the $66-$68 range, meaning that if there’s sufficient demand from investors, Alibaba could blow past the Agricultural Bank of China’s $22bn float in 2010 to raise $25bn in the largest IPO in history.
Alibaba, which operates the Taobao and Tmall online marketplaces, handled $248bn in transactions last year - more than Amazon and eBay combined. It makes money through advertising fees and by charging a commission to the more than 8m merchants that sell their goods on its websites. Alibaba controls about four-fifths of China’s emerging e-commerce market, which helped it to grow sales by 46 per cent and nearly triple its net profits to $2bn in the three months ended June 30.
A promising aspect of its business is Alipay, an affiliate that processes transactions on Alibaba’s shopping platforms. Analysts at Credit Suisse believe the business, which controls nearly half of China’s payments market, could be worth $50bn-$70bn in the future. Moreover, in the event of a sale or listing, Alibaba will receive a one-off payment of up to 37.5 per cent of AliPay’s value.
But Alibaba’s structure and governance may be cause for concern. For instance, Alibaba’s executives have the right to nominate the majority of the company’s board, a condition that Hong Kong’s stock exchange refused to meet. Moreover, restrictions on foreign ownership of Chinese businesses will mean that investors own shares through an offshore vehicle that simulates ownership of Alibaba’s assets. And company chief Jack Ma has repeatedly said that customers and employees are more important than shareholders.
Alibaba has also perplexed investors with a series of odd deals this year. For instance, it shelled out $194m for a 50 per cent stake in Guangzhou Evergrange, a professional football team. The company wants to be a “zoo that houses many animals rather than a farm with one animal,” Mr. Ma told investors.
