Get ready. Get Set. It’s coming. The Alibaba IPO (BABA) is set to make its debut. Word on the Street has it that it will be in September. The Alibaba IPO promises to be one of the biggest IPOs in history. Many people are still wondering: “What is Alibaba?” Much like visionary Steve Jobs at Apple, founder, Jack Ma, had a vision of starting the biggest online e-commerce company in the world in China. Much like the first techies at Silicon Valley, he started Alibaba in his garage. He knew that the United States had the technology to build huge online stores like Amazon. He was able to convince a small group of entrepreneurs to work with him and Alibaba was born. Today, Jack Ma is China’s 8th richest man and ranks 122nd on Forbes list of richest persons. He has since given up the reins at Alibaba but will remain the largest shareholder. He has structured his board of directors so that he has control over half of the appointments. Ma’s business philosophy states that he recognizes the ruthlessness of capital markets, but has vowed to put customers before shareholders.
What is Alibaba?
Alibaba is a holding company for three online divisions: Taobao, Tmall and Alibaba.com. It has offices in the United States, the UK, India, Japan and Korea. It controls 80% of China’s online shopping. It has grown to be the most valuable public company in China. China has 560 million Internet users compared to half that amount in the US. In 2012, Alibaba had 36.7 million registered users. Its Taobao is one of the 20 most clicked on sites in the world.
In addition, its Alipay division controls 70% of China’s mobile payments in 2013. It offers financial services, the chance to buy theater tickets, pay for taxis and invest in a Money Market Fund. The fund, called Yu’s Bao has $87 billion in assets.
To illustrate its awesome sales power, Taobao logged sales of $5.75 billion in one 24 hour period, on November 11, 2013. That was during a festival much like our Valentine’s Day celebration.
Taobao is Alibaba’s biggest online store. It features off brand items offered by thousands of small merchants. The site is free to users but merchants pay for advertising to get featured exposure. Tmall offers brand name merchandise.
When it comes to bottom line, Alibaba’s 2013 revenues were $7.95 billion and net profit was $3.56 billion. Profit margin was 45%. This compares with 17.8% for eBay. Revenues in Q4 were up 66% from the prior year. Alibaba does more online business than eBay and Amazon combined.
Alibaba wants to raise $1 billion from its IPO, however that figure could jump to $15 to $20 billion. Analysts are putting a value on the company in excess of $150 billion.
Yahoo owns 24% of Alibaba and stands to net close to $10 billion from the sale of its shares.
Looking forward, Alibaba plans to focus on online buyers using smartphones to make purchases. This is a growing trend, both in the US and in China.