As widely anticipated, the Chinese-based Alibaba IPO is headed to the U.S. … and this offering is likely going to rewrite the record books.
The Alibaba IPO would raise $1 billion, according to its F-1 — the foreign-company version of the S-1 — which Alibaba filed with the Securities and Exchange Commission today.
However, some expect the Alibaba IPO to raise as much as $20 billion, and if so, that would represent the largest tech IPO in U.S. history, topping the Facebook (FB) offering in May 2012, which raised $16 billion.
Now, let’s get to know the Alibaba IPO a little better.
More About Alibaba and the Alibaba IPO
Alibaba is a group of several Chinese e-commerce businesses whose history dates back to 1999. Main co-founder Jack Ma was a former English teacher and started the firm in his modest apartment. But he saw that the Internet could be a great way to make it easier for Chinese companies to sell into other countries.
Ma has stuck to his vision, but he has also leveraged the Alibaba.com site into other segments, such as Taobao Marketplace (China’s largest online shopping destination), Tmall (China’s largest third-party platform for brands and retailers) and Juhuasuan (China’s most popular group buying marketplace by its monthly active users).
Sheer scale should gin up interest in the Alibaba IPO. Last year, those aforementioned marketplaces generated volumes of about $248 billion from 231 million active buyers and 8 million active sellers. That volume doesn’t just sound big — it is big. In fact, it’s bigger than the volume of Amazon.com (AMZN) and eBay (EBAY) combined!
To power all this, the company also has a massive logistics support system operated by Zhejiang Cainiao Supply Chain Management Co. (Alibaba owns 48% of the company). As a testament to its strength, Alibaba’s network was able to handle 156 million packages for delivery during the Singles Day holiday promotion in 2013. Meanwhile, average daily volume is about 13.7 million packages.
Click to Enlarge Other businesses have fed growth and could provide more fuel for the Alibaba IPO. There’s AliExpress, a provider of cloud services to third-parties (similar to Amazon.com’s AWS system), as well as Alipay, essentially a version of eBay’s PayPal. Of course, you could say that PayPal is like a verson of China’s Alipay — Alipay generated $519 billion in payment volume last year, compared to “just” $180 billion by PayPal.
In terms of monetization, Alibaba gets much of its revenues from transactions and commissions. In the final nine months of 2013, Alibaba posted overall revenues of $6.5 billion, up 57% on a year-over-year basis, and net income was $2.9 billion, up by more than 3X.
How Will the Alibaba IPO Fare?
The IPO market has been in full bear mode lately. Even top-notch companies have suffered greatly, such as Twitter (TWTR), which has lost more than 50% of its market value since peaking in late December. Meanwhile, Chinese-based Internet players have been weak, too, with Weibo (WB) — essentially the Twitter of China — struggling with its own recent IPO.
Yet the growth opportunities in China continue to be robust. While there are 618 million Internet users, only about 302 million are e-commerce shoppers, meaning there’s a big pool of new customers still on the sidelines. In fact, according to iResearch, online shopping is forecast to jump from 7.9% of total consumption in China in 2013 to 27.2% by 2016.
Click to Enlarge Mobile also should be a nice booster. A smartphone provides a convenient way to make purchases, and that’s all the more encouraging when you consider that China is the largest mobile Internet market with about 500 million users.
All in all, Alibaba is likely to get an outsized share of the e-commerce opportunity. The company has an extensive platform and a variety of strong brands (keep in mind that a majority of customers go directly to the marketplaces — not using a search engine or third-party referring site). It also helps that Alibaba has built a powerful ecosystem, making it difficult for merchants and suppliers to move to a rival.
If Alibaba can prove to investors that it’s in a different league than other flailing Chinese Internet stocks, this could be a blockbuster IPO not just in money raised, but in giving investors a ride, too.
The filing did not mention which exchange the Alibaba IPO will list on. But the betting is that it will be for the NYSE.
While a date has not been set for the filing, the likely timetable is within the next few months.
Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.