Alibaba: will e-commerce giant be the biggest flotation of all time?
Share price valuation means the firm Jack Ma started 15 years ago is now worth a total of $167.6bn
The "biggest stock market flotation of all time" takes place today, with Chinese e-commerce giant Alibaba hitting the New York Stock Exchange with a share price of $68. The valuation is higher than expected and gives the internet firm a total worth of $167.6bn.
In a break with the norm, The Guardian reports, early investors will not be required to hold onto shares for several months under 'lockup' rules. Instead they will be able to begin trading them immediately. A total of $8bn worth of shares will be sold this morning.
The paper says some observers believe the company’s value could top $200bn once it goes public. If so, it will be almost more valuable than the combined worth of Amazon and eBay, the two e-commerce firms to which it is most often compared.
Interest in the flotation is at fever pitch after a two-week global road-show. The firm, Alibaba Holding Group Ltd, will trade under the ticker BABA.
Flamboyant former English teacher Jack Ma started the firm 15 years ago in his one bedroom apartment in Hangzhou – the nine per cent stake he retains makes him China’s richest man. The firm's core business is connecting Chinese manufacturers with foreign businesses.
Ma will sell 12.7 million shares at the IPO (Initial Public Offering), earning him around $864m. When Facebook broke records at its IPO in 2012, investors were not allowed to sell shares until after a lockdown period.
The analyst PrivCo calculates that stock will soar on day one, with the shares rising from $68 each to in excess of $100. The company is expected to use the cash it generates from flotation to expand its business into the US and Europe.
What does Alibaba do and who set it up?
According to the BBC, it is "almost easier to list what Alibaba group doesn't do". The company's first business, alibaba.com, was set up in 1999 by former school teacher Jack Ma who scraped together $60,000 from a group of friends in Hangzhou in southern China. He is now China's richest man, worth an estimated $22bn through his 7.3 per cent stake in the business, according to Bloomberg.
Alibaba.com, the company's first website, helps to connect exporters (largely in China) to other companies in over 190 countries around the world. But that is not the company's only asset. Alibaba also owns taobao.com – a site similar to eBay or Amazon which has become China's largest shopping website – and the spin-off site tmall.com which sells high-end brands to China's growing middle class.
It also runs alipay.com, a service similar to PayPal and has large stakes in Sina Weibo, China's answer to Twitter and Youku Tudou, a video service similar to YouTube.
Possibly most significantly of all, the company also plans to enter the banking industry, the BBC says.
How does it make money?
Alibaba’s business model is closer to eBay than it is to Amazon – it acts as a middleman connecting buyers to sellers, not managing products itself. Consequently, its running costs are still relatively low. Alibaba's revenue comes from a combination of the small stake it takes from each sale and from advertising on its websites.
Why has it been such a success?
According to the BBC, Alibaba's success comes down to its great skill in harnessing the world of online commerce. It now accounts for 80 per cent of all online retail transactions in China, which is a staggeringly huge market. Almost half of China's 1.3 billion people are internet users, which almost rivals the number of internet users in the US and Europe combined (which amounts to 823 million users). Alibaba also has a huge presence in the growing mobile retail sector, controlling over 75 per cent of all mobile sales in China, the BBC reports.
Who is Jack Ma?
Jack Ma, the 49-year-old founder and chairman of Alibaba is now richer than Ma Huateng, the founder of Tencent Holdings, China’s largest internet company by market value and Robin Li, the founder of search engine Baidu.
Unlike Facebook’s Mark Zuckerberg, Apple’s Steve Jobs or Microsoft’s Bill Gates, Ma admits to having little understanding of technology. According to the New York Times he plays a different role in the company, as "a flamboyant motivator in chief to his staff and a relentless opponent to those who have competed against him".
In 2013, Ma stepped down as chief executive of Alibaba, but remains the company's chairman and charismatic figurehead. In 2009 he appeared at an event celebrating the company's 10th anniversary in lipstick and a pink Mohican wig and sang Elton John's Can You Feel The Love Tonight.
Ma is also known as a generous philanthropist. In April this year he announced that he would donate two per cent of Alibaba’s stock (worth several billion dollars) to trusts that benefit the environment, medicine and education.