Alibaba’s IPO: David Corazza on the Bid that Has Wall Street Buzzing, and the Price Rising
The recent Alibaba initial public offering (IPO) made history. David Corazza, an executive in the entertainment industry who specializes in providing revenue forecasts for companies such as HBO, Showtime Networks, Warner Brother’s Studios, and Netflix, offers his take on the offering and its implications for investors.
In the leadup to the IPO, the company increased its share price to nearly $70 and eventually released even more shares. When all was said and done, the company raised a jaw-dropping $25 billion, making its IPO one for the record books.
“This is one of the biggest IPO events in the history of the market,” notes David Corazza. “Seemingly everyone in the industry is talking about this, and their road tour promoting their IPO has driven incredible interaction on both social media and at their live events.”
What is Alibaba?
Plenty of people, particularly in the US, may not have heard of Alibaba until the announcement of the company’s IPO. Although the company now trades on the New York Stock Exchange, it is based in China.
The company is the largest e-commerce company in the world, according to the Wall Street Journal. In 2013, the company made up 80 percent of China’s online shopping market, with sales totaling $248 billion. China is the part of the world with the fastest growing e-commerce market, so sales on the sites own by Alibaba are expected to continue to climb, set to reach $713 billion in 2017.
Alibaba isn’t just one website. It’s a collection of sites, the three biggest of which are Alibaba, Tmall and Taobao. The company runs marketplaces in which buyers and sellers connect, similar to sites such as eBay or Amazon Marketplace but on a much bigger scale. The Wall Street Journal reports that in the second quarter of 2014, just two of Alibaba’s main sites had $80 billion in gross merchandise volume – compare that to the $20 billion over at eBay.
The company has become more than just marketplaces. It also includes a payment app, Alipay, that lets people purchase a wide range a wide range of items and even invest in one of the largest global money market funds.
Before the IPO
The buildup to the company’s IPO was an incredibly exciting time for people in the financial industry and investors. “I can’t tell investors what to do, but I can tell them that this is an opportunity that does not come around everyday,” noted David Corazza. “Companies of this scale are not announcing IPOs every quarter.”
Reuters reported that the company had enough interest to cover the entire IPO deal within just two days. At first, the company offered 320.1 million shares, initially priced between $60 and $66 each. The initial share price later crept up to $66 to $68 each. When the IPO opened on Thursday, September, the share price was set at $68.
At first, the amount Alibaba sought in its IPO was $21.8 billion — not an amount to sneeze at, but also not a record-breaking sum. The company was able to push past the record amount ($22 billion, set in 2010 during the IPO of the Agricultural Bank of China) when an additional 48 million shares were released during the IPO.
The extra shares were sold by Jack Ma, the founder of the company, who at the time owned nearly 9 percent of it; Joseph Tsai, the vice chairman of Alibaba; and Yahoo. Yahoo ended up selling 140.3 million shares in the IPO, earning more than $9.5 billion before tax. In all, the company pulled in $25 billion from the IPO, making it the largest IPO ever.
After the IPO
Now that the company’s IPO has come and gone, some investors might be wondering if it’s worth investing in the company.
“It’s important for investors to understand exactly what they’re expecting to achieve through this investment. It is likely this will only cater to a small percentage of investors,” David Corazza advises.
Investing in Alibaba isn’t just investing in a large e-commerce site. As Jesse Solomon, writing for CNN Money, points out, investing in the company is akin to investing in China and acknowledging that the country has the potential for a great amount of growth, especially in the long term.
Although long associated with poverty and poor working conditions, the population of China is experiencing a revival of the middle class. Solomon notes that on “Singles Day,” the country’s version of Black Friday, online sales neared $6 billion, or five times the amount everyone in the US spent online on Black Friday.
Just a fraction of China’s population of 1.3 billion is currently online, but that fraction is expected to increase in the coming years. As the country becomes more wealthy and more and more people come online and start shopping, Alibaba can only grow in size.
For investors who got in early, that can only be good news, notes David Corazza.