Alibaba keen not to repeat Facebook's error in any IPO

The online retail operator wants to make sure any IPO is at a price that will not immediately crash by half, as Facebook's did, a source says

PUBLISHED : Tuesday, 07 May, 2013, 12:00am
UPDATED : Tuesday, 07 May, 2013, 4:25am

Alibaba Group does not want to be the next Facebook, at least for its prospective initial public offering.

The world's biggest online retailer was considering a more conservative valuation than the one the social networking company achieved last year, a person familiar with the situation said.

While Alibaba, based in Hangzhou, Zhejiang province, has said it has no timetable for an initial share sale, analysts are expecting an offering this year or next.

Proceeds from the offering would be used, along with additional cash, to buy back stock held by Yahoo, the source said.

Alibaba, which has made Jack Ma Yun a billionaire since he founded the company in 1999, is already in the early stages of a Facebook-like speculative fever over its valuation.

Alibaba, which has made Jack Ma Yun a billionaire since he founded the company in 1999, is already in the early stages of a Facebook-like speculative fever over its valuation

With revenue projected to increase by nearly two-thirds this year, echoing estimates for Facebook at the time of its float, some analysts have said Alibaba could be valued at as much as US$100 billion, close to the US$104 billion Facebook fetched in its offering.

While investors may clamour to own a piece of the world's biggest e-commerce platform, that kind of price could produce disgruntled shareholders and a legacy of ill will if the stock drops - the same fate that befell Facebook, which went on to lose half of its market value.

Investors, who have seen the most traded US-listed Chinese stocks fall 6.8 per cent this year while the Standard & Poor's 500 Index rallied 13 per cent to a record, also need to be comfortable with the price.

A more reasonable valuation might be about US$62.5 billion, the median of eight estimates by investment banks and research firms since February. That is 84 times the estimate of last year's net income by Morgan Stanley analysts. Facebook's offering valued the firm at 107 times the previous year's net income.

Alex Wang Tingting, a Beijing-based analyst at the internet consulting group iResearch, said: "If investors want to buy into the future, Alibaba's growth potential and dominant status in China's e-commerce business is irreplaceable. Investors will find Alibaba very attractive."

The firm had no timetable for a stock offering, Alibaba spokesman John Spelich said.

Ma, the executive chairman, said last year the company might go public within five years.

Jonathan Lu will replace Ma as chief executive this month.

It is not known how much of the company might be listed.

Alibaba does not sell merchandise itself. Instead, it runs platforms including Taobao Marketplace and which connect retail brands with consumers - a cross between Amazon and eBay.

The estimated value of goods sold on Alibaba last year, everything from consumer staples to cement and aluminium, was US$180 billion, about triple Amazon's sales, said Eric Qiu, an analyst at Guosen Securities.


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