Alibaba Prices IPO at $68 Per Share for the Largest IPO Ever
September 18, 2014
By Telis Demos
WALL STREET JOURNAL – Alibaba Group Holding Ltd. ‘s shares priced Thursday at $68, at the high end of expectations, in what is one of the world’s largest initial public offerings ever.
The deal raised $21.8 billion, to be split among the Chinese e-commerce behemoth, its executives and early investors. The total comes close to the previous record of $22 billion raised by Agricultural Bank of China Ltd. in 2010.
Alibaba is a collection of various online marketplaces for consumers and businesses that makes its money primarily by charging advertising fees to merchants looking to promote themselves in its chaotic online bazaars that have 279 million active buyers and 8.5 million active sellers.
Its IPO has been anticipated for months, if not years, as investors have been attracted to the company’s market dominance in China and its impressive profitability. The deal also carries significant symbolic value: A Chinese company achieving a historic IPO by listing its shares in the U.S.
Risks, though, exist. Alibaba has a complex corporate structure and unusual governance. In addition, it faces tough competition from heavyweights like Tencent Holdings Ltd. in China, as well as potentially Amazon.com Inc.and eBay Inc.in the U.S.
Still, Alibaba’s IPO price values the whole company at $168 billion, making it instantly one of the largest listed in the U.S. and giving it a larger market capitalization than Amazon, which is at about $150 billion.
The stock is poised to start trading Friday on the New York Stock Exchange under the symbol BABA. Alibaba decided to list its shares in New York instead of Hong Kong because regulations in the Asian hub prevent the company’s founding partners from maintaining control of the board.
Alibaba, founded in 1999 by now-Executive Chairman Jack Ma, has thrived on the boom in e-commerce in China, the world’s most populous nation. According to recent readings, Alibaba controls 80% of China’s e-commerce market. The company’s Taobao and Tmall marketplaces handled $248 billion in online transactions last year, which is more than Amazon and eBay had combined.
The company’s momentum has continued. Last month, Alibaba posted a 46% jump in revenue for its most recent quarter, helped along by an increase in revenue and transactions derived from mobile users. The company also is far more profitable than many of its American Internet counterparts, generating 43% operating profit margins in the second quarter. In comparison, Amazon had a 0% operating margin.
Mr. Ma has pushed his company to expand into other segments, as well, making more than a dozen acquisitions already this year. Recently, it bought a stake in online video-site operator Youku, Tudou and a 50% stake in a professional soccer team. Investors who attended a recent Alibaba presentation told The Wall Street Journal that Mr. Ma said the company wants to be a “zoo that houses many animals rather than a farm which just has one animal.”
Investor interest has been high for Alibaba shares. Because of the demand, Alibaba earlier this week raised the deal’s price range to $66 to $68 per share, from its initial estimate of $60 to $66 a share. In addition, the banks in charge of the company’s IPO had started closing order books earlier this month.
For the full press release, click here. For additional coverage, CNBC.