What's the Big Deal About Alibaba's IPO?

by Sohini Bagchi    May 08, 2014

alibabama

As Chinese technology company Alibaba files for its initial public offering in the US, many may have wondered what’s the big deal about it? One may not realize, but what matters is, analysts have valued it above U.S. tech giants like Facebook! What may also matter is the global ambition of a home grown company, which is clearly setting the stage for growth elsewhere in the world with its initial public offering, choosing to list in New York over Hong Kong or Shanghai.

Now it’s worth knowing why China’s leading online shopping major, Alibaba Group is hitting headlines globally in the last couple of days and the “big deal” about it…

What analysts speculated?

The online commerce company has two sites that handle different forms of e-commerce: Tmall, a B2C site often compared to Amazon and Taobao, a C2C site similar to eBay. Apart from this, Alibaba leads in online and mobile payments in the country, as well as leads in other areas such as cloud computing, search and group shopping. According to Alibaba’s filing with the Securities and Exchange Commission, it has 231 million people buying from its sites.

While Alibaba’s values after the IPO is still speculative, Bloomberg estimates its market value at $168 billion, making it the most valuable Internet company, after Google, reports The Star. Another report by Huffington Post values it between $150 billion and $250 billion, likely somewhere between Facebook ($157 billion) and Microsoft ($332 billion).

The company currently occupies 80% of Chinese e-commerce markets that are expected to more than double in the next four years, as per several reports.

A unique innovative streak

While some believe the site just an combination of Amazon, eBay and Paypal, Alibaba always had a unique Chinese roots, and it used indigenous innovation to beat foreign players in Chinese markets. It has handled more than $248 billion in transactions last year, more than Amazon and eBay put together, mentions Bloomberg.

Jack Ma, the founder of Alibaba, who stepped down as CEO last year, but he reportedly maintains strong control and large ownership over the company has often being compared with Steve Jobs, owing to his obsession with innovation, charm and spiritualism.

Time and again his company has proved to be an innovative one. For example, it has used instant online micro-loans to grow its vendor base and get around inefficiencies in China’s financial markets. A blog post mentions “On Taobao, you find live scorpions, rental boyfriends or Tibetan Yak testicles and more bizarre…”

Alibaba hosts a mass wedding of more than 300 couples every year to commemorate the perseverance of early employees during the depths of the SARS epidemic that shook China in 2003. Newlyweds, many of whom are beamed into the ceremonies over the Internet, receive a gift package including a wedding certificate personally signed by Jack Ma, says a Huffington Post article.

Not without worries

However, investors have reasons to worry about the Alibaba IPO., the main reason being the company’s uncertain policy frameworks and a relatively weak corporate governance structure. As a private company pushing the boundaries of commerce and finance, there is always a fear that the state or state-owned banks will try to reassert dominance in a given sector.

While until now the company maintained its sole focus on China, but all that may change with the IPO. Alibaba will offer investors, a chance to invest in China’s enormous and fast-growing market, especially after the success story of Huawei and Lenovo. But as a Guardian report notes the company is still little known in the west and its complex series of holdings may prove unpalatable for some investors. This is an area to watch out as the Chinese tech giant plans to go public.