As Jack Ma, the founder of the largest e-commerce company in the world – Alibaba – travels around the US, Europe and Asia on an Investment Roadshow prior to the listing of Alibaba on the New York Stock Exchange, investors all around the world are taking a step back to look at Alibaba’s growth journey. Alibaba is now bigger than Amazon and eBay combined and growth is set to snowball. In fact, the Alibaba ecosystem isn’t just Amazon, under its umbrella sits China’s equivalent of Dropbox, PayPal, Hulu, ING Direct, Uber and much more… Just 15 years ago, when Alibaba was in its infancy, Jack Ma travelled to the Silicon Valley to raise US$2 million from Venture Capitalists, only to walk away empty handed.
Now, Alibaba is pitching to the world’s most savvy investors to raise up to US$21.2 billion dollars, the largest technology or internet related offering in history, which would value the company at over US$160 billion. To give you an indication of size, the largest IPO ever was that of the Agricultural Bank of China which raised US$22.1 billion in July 2010. The price range for Alibaba stock, set by the company, is $60-$66. Analysts have commented that the lack of fluidity in the governance structure (Ma still controls the board) will be priced in as a discount, but nevertheless, the growth opportunity remains enormous in the short term. Other analysts argue that with Alibaba maintaining control of the board and its appointments will protect the long-term investors from the speculators and short-term investors.
Alibaba holds an 80 per cent market share of China’s e-commerce market and has its eyes set on the global stage. A core part of its business is e-shopping platform, Taobao, which accounts for over 90% of online consumer transactions in China. Some see Alibaba becoming the world’s second Amazon, yet Alibaba distinctly sees itself as a platform for small businesses to do business around the world with China as its primary market. Alibaba’s model is that of a marketplace – connecting buyers and sellers, whereas Amazon’s is a merchant model – owning the stock – the questions arises as to whether as the Chinese market matures, whether the marketplace model will give way to the merchant model which has been so successful in the US.
There is no doubt that the e-commerce and consumer spending story in China will be a fruitful one and Alibaba will provide a well-regulated gateway for foreign investors to tap into the Chinese market. China has over 600 million internet users, over half of which shop online - as both these numbers grow to equivalent Western ratios – we will see unprecedented growth fuelled by the sheer size of the Chinese market and the rise of the wealth amongst Chinese consumers.
With lots of debate surrounding the IPO, the question still remains – is the Alibaba investment opportunity too good to be true? With its strong track record and ability to innovate on scale at speed, Alibaba will keep sending ripples through the world’s market.