Life is good when your customer base is about a billion and a half industrious people, most of whom own a laptop. And if you’re clever and daring on top of it… you’ll be Alibaba. As in Alibaba Group Holding (BABA.N), which on Thursday priced its initial public offering at $68 a share, the very best anyone had been expecting, raising $21.8 billion. Reuters called it “strong investor appetite” for the e-commerce giant. Yes, if they could eat actually eat it, they would have.
At $68 a share, one of the largest-ever IPO, should settle Alibaba in a market valuation of $167.6 billion, more than, say, Amazon (AMZN.O) and eBay (EBAY.O), with whom it is directly competes, not to speak of Walt Disney Co (DIS.N) or Boeing Co (BA.N).
“I’d put them (Alibaba) in a class of Facebook and Google with the scale they have, growth prospects and profitability, ” Scot Wingo, CEO of e-commerce software provider ChannelAdvisor, told Reuters. “There’s a scarcity value there.”
Scarcity value is the economic factor that increases an item’s relative price based as much on the fact that it’s in a low supply, as on the things it can do.
An Ipsos poll conducted for Thomson Reuters found that 88 percent of Americans had never heard of Alibaba, which happens to serve 80 percent of all online sales in China, the world’s second largest economy.
Americans and geography – don’t get me started.
Now, do you remember sci fi shows like V, where aliens are landing on Earth, bringing fantastic changes to everyone, only to be revealed in the end as fascistic, mice-eating lizards? Some sober voice in the U.S. remind us of those flicks, and for good reason.
“Rarely in history has there been an IPO of this size for a company that we know less about, ” Senator Bob Casey, Democrat of Pennsylvania, said in a statement on Wednesday. “I continue to be concerned that about the level of transparency from Chinese firms listing in our markets.”
And Henry Blodget says: “… hundreds of things can go wrong…but given the growth trend and opportunity and market position, the stock could trade [at $100] and not be ridiculous.”
Blodget warns individual investors about the dangers of buying IPOs and, expresses specific concerns about Alibaba’s governance, but concedes: ” A lot of big mutual and investors who’ve been starved for big, fast-growing companies” are in a rush to get into Alibaba.
And when cute little mice go missing all over America … what are we going to do?
But enough with all that sobriety, Reuterrs reported that some 40 institutions have placed orders for $1 billion or more shares each of Alibaba.
Once the underwriters exercise an option to sell more shares, as the market is expecting they will, Alibaba’s IPO will become the largest-ever.
Alibaba’s revenue has gone up 46 percent in Q2, on strong gains in its mobile business, with net income to shareholders just about tripling to $1.99 billion, or 84 cents a share.
Ma, who founded the company in a one-bedroom apartment, will be worth $14 billion, give or take a million, which means he’s starting to play catch-up with the likes of Bill Gates and Jeff Bezos.
The IPO’s success is already bolstering Yahoo (YHOO.O), which got in on the ground floor at Alibaba. Yahoo is selling $8 billion in shares in the offering, leaving it with a 16.3 percent stake.