It’s a wrap. The Alibaba (BABA) IPO ended the day up an impressive 38% to $93.89, giving the company a market cap of $231 billion on volume of a staggering 271 million.
The deal actually overshadowed what otherwise would’ve been news-leading items such as the failed vote for independence in Scotland, Larry Ellison’s move to step down as CEO of Oracle (ORCL) and the debut of Apple’s (AAPL) new iPhone.
After such a big day, the valuation on BABA stock looks awful pricey. The price-to-earnings multiple (based on fiscal 2014 earnings) is about 62x, but if you factor in the growth rate, things look more reasonable. For example, if net income increases at just half the rate of the past year, Alibaba would be trading at a forward P/E of about 33.
The true test for BABA stock will be the next 12 months. The company is in the midst of a massive investment push in M&A, venture deals and infrastructure. They’re all important for growth … but they all could weigh on margins.
Alibaba also faces the headwinds of competition from players JD.com (JD) and Tencent (TCEHY), which are gunning after a bigger piece of China’s e-commerce pie and have valuable platforms they can use to snap up more market share. It’s possible that Tencent’s WeChat system is the biggest threat — while it is social media, it has more than 400 million users and already has proven useful as a viable e-commerce platform.
Another big wild card: China’s economy. For the past few months, much of the news out of the country hasn’t exactly been encouraging, and growth has been slowing.
Should that continue, Alibaba will feel the pressure.
Broadly speaking, though, the Alibaba deal is a good sign for the IPO market. There’s clearly interest in growth companies, so expect to see no slowdown in offerings for the rest of the year.
Read below for earlier-day updates from the Alibaba IPO.
Alibaba Blog
12:57 p.m. EST: Yahoo is off more than 5%, dipping right around when Alibaba shares hit the market.
12:25 p.m. EST: Some quick metrics — Alibaba is trading at 61 times fiscal 2014 earnings, and 26 times revenues.
12:05 p.m. EST: BABA stock opens at $92.70 — a 35% pop from its IPO pricing. At 2,465,005,966 shares outstanding, that’s a roughly $230 billion market cap, putting it in line with JPMorgan. So far, 111 million shares have traded hands.
11:42 a.m. EST: If Alibaba reaches $95, it will be bigger than Walmart (WMT) and become the largest retailer in the world.
11:35 a.m. EST: The Wall Street Journal reports that people familiar with the deal said that about half the offering’s stock went to a group of just 25 firms.
11:29 a.m. EST: Alibaba trumps JPMorgan (JPM)?
91-92 and BABA mkt cap is bigger than JPM — zerohedge (@zerohedge) September 19, 2014
11:12 a.m. EST: An update from the NYSE:
#Alibaba update: price range shifts to $87-$89. #NYSEIPO price discovery process continues. pic.twitter.com/3Z4D8wXc8X — NYSE (@nyse) September 19, 2014
11:09 a.m. EST: Pricing indications now see Alibaba opening between $87 and $89 or $88 and $90, depending on source.
11:07 a.m. EST: IPOs listed on the NYSE typically will begin trading within a half-hour of the opening bell. The extra time is necessary to sort out the buy/sell orders to come up with the right clearing price. However, the Alibaba IPO isn’t your everyday listing, and it appears a massive number of orders from around the world will push the offering’s opening back to around 11:30 a.m.
10:51 a.m. EST: Indications are now for $86 to $88 per share of BABA.
10:51 a.m. EST: Oh. Apple (AAPL) has some new phone thing out today.
10:49 a.m. EST: A quick look at other stocks that will play in Alibaba’s space. JD.com (JD), China’s No. 2 e-commerce operator, is down about 2% in early morning trading. Baidu (BIDU), China’s largest search engine, is off just 0.5%. Baidu has been investing aggressively in building its own e-commerce platform.
10:45 a.m. EST: At $85 a share, Alibaba would be worth $272 billion — about $70 billion more than Facebook (FB).
10:40 a.m. EST: The Alibaba IPO has raised nearly $22 billion.
10:30 a.m. EST: CNBC is reporting that the New York Stock Exchange is starting to indicate that BABA stock will open around $82 to $85, with sellers at $90.
10:25 a.m. EST: The current buzz is that Yahoo (YHOO) will use its windfall to wheel and deal. Yahoo sold 121.7 million shares, netting a cool $8.275 billion … and it still owns 401.8 million shares. Right now, one of the popular ideas getting buzz is an old one — the thought that Yahoo could buy AOL (AOL).
9:50 a.m. EST: Alibaba, the largest e-commerce operator in China, has priced its much-anticipated IPO. The company will offer 320.1 million shares of BABA stock on the New York Stock Exchange at $68 each, putting it at the top of the Alibaba IPO’s range of $66 to $68.
Assuming Alibaba’s underwriters exercise the option to buy more shares — which seems very likely at this point — the company should raise $25 billion, making the Alibaba IPO the largest public offering in history.
Lead underwriters are Credit Suisse (CS), Deutsche Bank (DB), Goldman Sachs (GS), JPMorgan (JPM), Morgan Stanley (MS) and Citi (C).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.
