Alibaba seeks to reverse hi-tech apathy with mega-IPO

Paperwork filed for listing that analysts estimate could value the company at more than US$250b

PUBLISHED : Wednesday, 07 May, 2014, 9:15am
UPDATED : Thursday, 08 May, 2014, 4:43am

Mainland e-commerce powerhouse Alibaba has filed the paperwork for its landmark listing in the United States, with its immense size likely to guarantee that mutual fund managers and index trackers around the world swarm to add it to their portfolios.

"The Alibaba [initial public offering] is a unique mixture of a Chinese domestic consumption and technology play, which includes profit-making online retail platforms and access to customers' eyeballs," said Keith Pogson, a senior partner with EY. "Given the large market capitalisation, investors, especially the index trackers, will be buying Alibaba stock, as major global financial index firms will include the firm in their benchmark indices."

In its filing with the US Securities and Exchange Commission, Alibaba projected its market value at between US$97 billion and US$121 billion, and said it aimed to raise a nominal US$1 billion from the listing - a figure used to calculate its registration fee.

But the firm is expected to raise about US$15 billion to US$20 billion, depending on how many shares existing shareholders, including Yahoo, Softbank and a slew of private equity firms, want to offload in the initial public offering.

A listing on the New York Stock Exchange or Nasdaq by the company, which operates retail sites including Taobao, Tmall and Juhuasuan that control about 80 per cent of the mainland's e-commerce, would see it become the fourth-biggest technology firm after Apple, Google and Microsoft.

Analysts have estimated that an Alibaba float could raise up to US$20 billion and value the company at more than US$250 billion, making it the biggest technology listing on record. Facebook's float raised US$16 billion in June last year, valuing the social media firm at more than US$100 billion.

Pogson said Alibaba's valuation was the biggest swing factor for a successful listing, as the traditional yardstick of a price-earnings ratio could not properly gauge the fair value of the rapidly growing company.

Philip Lee, a director at S&P Capital IQ, the research arm of McGraw Hill Financial, said Alibaba's revenue growth and its proposed market value relative to the past 12 months' sales might give a fair assessment of the firm. He said it was worth highlighting that advertising revenue represented a sizable portion of Alibaba's earnings, which deserved a premium over Amazon, which relied on commission fees.

Alibaba's revenue grew 66 per cent year on year in the fourth quarter of last year to US$3.1 billion, while net income soared to US$1.4 billion from US$642 million a year earlier.

Ben Kwong Man-bun, the head of research at KGI Asia, said investors should be careful when considering whether to subscribe to Alibaba's shares because large fund managers had been shunning pricey technology stocks amid the US Federal Reserve's tapering of quantitative easing.