Alibaba's IPO prospects lift on earnings surge

E-commerce giant's profit more than doubles to US$1.3b for quarter, stakeholder Yahoo reveals

PUBLISHED : Thursday, 17 April, 2014, 1:10am
UPDATED : Thursday, 17 April, 2014, 4:52am

Alibaba Group posted a surge in fourth-quarter profit as analysts raise their valuation before a potential US initial public offering by China's largest e-commerce company.

Net income attributable to ordinary shareholders more than doubled to US$1.35 billion in the three months to December, according to a presentation from Yahoo, which owns a 24 per cent stake in the Hangzhou-based company.

Alibaba was valued at US$153 billion in February, according to the average estimate of 10 analysts in a survey.

Sales jumped from shopping promotions, including a record for November's "Singles' Day", as Alibaba uses acquisitions to bolster mobile services before a market debut.

The company generates about 70 per cent of China's package deliveries and last month began the process for an offering, which may be larger than the US$16 billion raised by Facebook in 2012.

"The results definitely exceeded expectations," Sameet Sinha, an analyst with B. Riley & Co. "We can expect to see the first quarter again be very solid because of the Chinese New Year."

Sinha has raised his valuation on Alibaba to US$180 billion from US$130 billion.

Shares of SoftBank, which owns about 37 per cent of Alibaba, rose 8.5 per cent in Tokyo trading, their biggest gain since June 10. Yahoo shares rose in extended trading on Monday, after increasing 2.3 per cent to close at US$34.21 in New York.

Alibaba is planning to award about a third of the fees for its initial public offering in the form of incentive bonuses to coax better performance from underwriters, people with knowledge of the matter said.

It plans to pay at least 1.1 per cent of the total IPO proceeds in fees, two people said, asking not to be identified. As estimates of Alibaba's valuation suggest the company could raise as much as US$18 billion in the sale, making the potential fee pool almost US$200 million.

Performance incentives are common in Hong Kong and have been used by companies including Agricultural Bank of China.

In US listings, most of the fees typically go to one or two firms picked to lead a sale, and the breakdown is previously agreed. That arrangement reflects the power that bankers hold over companies during the IPO process, according to University of Notre Dame professor Tim Loughran.

It could also leave banks tempted to serve a different client than the company: the fund manager who regularly bought into IPOs and was seeking to pay as little as possible for the stock, he said.

"High-quality work should be rewarded, so this is very much a positive," said Loughran. "Companies like Alibaba, which have more power, can get away with this stuff because in the negotiations they're in the driver's seat."