Last Friday's high-flying NYSE IPO of Alibaba beat even the most optimistic expectations. Its share closed at $ 93.89, 38.03% higher than the target price and thus will raise $25 billion, a record in NYSE IPO history. At that price, the market value of Alibaba will be $213.4 billion, larger than that of Amazon and E-Bay combined, making it the world's second largest e-commerce giant after Google.

Alibaba closed its American roadshow ahead of schedule, as potential investors swamped into the Waldorf Astoria ballroom. Its original target was easily met. Just ten days before the IPO, the New York Times columnist Charles Lane wrote an article entitled "China has big stakes in Alibaba's mega-IPO," warning investors about the company structure, and its implied control by the Chinese government and the Chinese Communist Party. Three months before, the US-China Economic and Security Review Committee forwarded a report to Congress, warning of the risk of investment losses due to Alibaba's company structure and its VIE returns. However, all those remarks were completely neglected by fervent investors.

Invest in the Vast Chinese E-Commerce Market Potentials

One third of Alibaba's shares were bought with international capital. As capital always chases after good returns, or the prospect of good returns, the fundamental reasons behind this record IPO is Alibaba's extraordinary performance over the past ten years. Alibaba earned a record revenue of RMB 15.77 billion during the second quarter of the 2013/14 fiscal year, 46.3% higher than a year ago. Its net profit hit RMB 7.3 billion, up 62%. Alibaba currently commands almost 80% of the vast and fast growing Chinese e-commerce market.

China was a late starter in e-commerce. It had less than one million Internet users in the late 1990s, when the US already had over 100 million. However, by mid-2014, China had 632 million Internet users, twice the population of the US. It is estimated that the number will quickly grow to 850 million by the end of 2015. Total retail sales by Alibaba's T-Mall reached RMB 501.0 billion, or US$ 81.29 billion, for Q2 2014, surpassing US revenue of $ 69.2 billion for Q4 2013. There is plenty of room for growth ahead. China's online shoppers numbered 190 million, with a penetration rate of 48.9%, considerably lower than the US at over 70%. This rate has gained an average of 4.5 percentage points per annum for the last 6 years. If the current tempo continues for the next 6 years, the rate will hit 76% by 2020, or over 600 million. Moreover, the scope of Alibaba's business has gone fare beyond on-line shopping, and penetrated into on-line payment, delivery services and smart logistics, entertainment and information, and the whole supply chain. And it is still expanding into a full-fledged eco-system of commerce. It can well be anticipated that Alibaba will continue to deliver fast growth and fabulous returns in the foreseeable future.

Go to Forum >>0 Comment(s)