Alibaba shares skyrocket past IPO price in blockbuster trading debut
JEWEL SAMAD/AFP/Getty ImagesChinese online retail giant Alibaba founder Jack Ma (C) rings a bell to open trading on the floor at the New York Stock Exchange in New York on Friday.
NEW YORK — Alibaba debuted as a publicly traded company Friday and swiftly climbed more than 40% in a mammoth IPO that offered eager investors seemingly unlimited potential for growth and a way to tap into the burgeoning Chinese middle class.
The sharp demand for shares sent the market value of the e-commerce giant soaring well beyond that of Amazon, eBay and even Facebook.
The stock trading under the ticker “BABA” opened at US$92.70 shortly before noon ET and quickly rose to a high of US$99.70, before paring gains to close at US$93.89. Some 271 million shares changed hands, more than double the turnover on Twitter Inc’s first day last year, although still short of volume for the General Motors Co and Facebook Inc IPOs.
Jubilant CEO Jack Ma stood on the floor of the New York Stock Exchange as eight Alibaba customers, including an American cherry farmer and a Chinese Olympian, rang the opening bell.
“We want to be bigger than Wal-Mart,” Ma told CNBC. “We hope in 15 years, people say this is a company like Microsoft, IBM, Wal-Mart. They changed, shaped the world.”
The company’s online ecosystem stands apart from most e-commerce rivals because it does not sell anything directly, preferring to connect individuals and small businesses. It enjoyed a surge in U.S. popularity over the past two weeks as executives made sales pitches centred on Alibaba’s strong revenue and big ambitions.
“There are very few companies that are this big, grow this fast and are this profitable,” Wedbush analyst Gil Luria said.
Alibaba shares gained 46% from the initial US$68 per share price set Thursday evening. Demand was so high that the company raised its price ahead of the debut.
JEWEL SAMAD/AFP/Getty ImagesChinese online retail giant Alibaba founder Jack Ma (C-front) gives a thumbs up on the floor at the New York Stock Exchange in New York on Friday.
AP Photo/NYSE, Ben HiderRepresentatives from Alibaba ring the opening bell to celebrate their IPO at the New York Stock Exchange.
Alibaba’s Taobao, TMall and other platforms account for some 80% of Chinese online commerce. Most of Alibaba’s 279 million active buyers visit the sites at least once a month on smartphones and other mobile devices, adding to the company’s attractiveness as online shopping shifts away from laptop and desktop machines.
The growth rate is not expected to mature anytime soon. Online spending by Chinese shoppers is forecast to triple from its 2011 size by 2015. Beyond that, Alibaba has said it plans to expand into emerging markets and, eventually, into Europe and the U.S.
The company does not compete with its merchants or hold inventory, serving more as a conduit that links buyers and sellers of all kinds.
“The business model is really interesting. It’s not just an eBay. It’s not an Amazon. It’s not a Paypal. It’s all of that and much more,” said Reena Aggarwal, a professor at Georgetown.
Alibaba’s revenue from the quarter ending in June surged 46% from last year to US$2.54 billion. Its earnings climbed 60% to nearly US$1.2 billion, after subtracting a one-time gain and certain other items.
In its last fiscal year ending March 31, Alibaba earned US$3.7 billion, making it more profitable than eBay Inc. and Amazon.com Inc. combined. As of Thursday, Amazon had a market value of about US$150 billion, eBay US$67 billion.
AP Photo/Jason DeCrowArthur Jiang, of Beijing, China, poses for a photograph in front of the New York Stock Exchange on the day of Alibaba's initial public offering, Friday.
Based in Ma’s hometown of Hangzhou in eastern China, Alibaba began in 1999 when Ma and 17 friends developed a fledgling e-commerce business on the cusp of the Internet boom. Today, its main platforms are its original business-to-business service, Alibaba.com, consumer-to-consumer site Taobao and TMall, a place for brands to sell to consumers.
The IPO’s fundraising target handily eclipses the US$16 billion Facebook raised in 2012, the most for a technology IPO. If all of its underwriters’ options are exercised, it would also top the all-time IPO fundraising record of US$22.1 billion set by the Agricultural Bank of China Ltd. in 2010.
Yahoo stands to be a big winner. The U.S. company, which has been struggling to grow for years, is in line for a windfall of US$8.28 billion by selling 121.7 million of is Alibaba shares. And founder Jack Ma is selling 12.75 million shares worth US$867 million.
AP Photo/NYSE, Ben HiderIn this photo provided by the New York Stock Exchange, Jack Ma, founder of Alibaba is joined by Alibaba executives and NYSE CEO Tom Farley as they gather around the post during their IPO at the New York Stock Exchange, Friday.
Some analysts think the pricing is conservative.
Wedbush’s Luria gives the stock a one-year price target of US$80. Research firm PrivCo said the stock is worth US$100 a share because of all of the private companies that Alibaba has taken stakes in.
Alibaba offered 320.1 million shares for a total offering size of US$21.77 billion. Underwriters have a 30-day option to buy up to about 48 million more shares.
JEWEL SAMAD/AFP/Getty ImagesChinese online retail giant Alibaba founder Jack Ma smiles as he waits for the trading to open on the floor at the New York Stock Exchange in New York on Friday.
The company and its bankers avoided mishaps like those that plagued Facebook’s stock debut on the Nasdaq in May 2012. The social network’s first day of trading was marred by technical glitches. Despite an IPO that was hyped even more than Alibaba’s, Facebook’s stock closed just 23 cents above its US$38 IPO price on that first day and later fell much lower. The stock took more than a year to climb back above US$38.
Gartner analyst Andrew Frank said Alibaba’s success shows that Chinese Internet companies are beginning to challenge Silicon Valley.
“It’s not the first Chinese company we’ve seen in the Internet space but it’s certainly the biggest one that seems to be resonating,” he said. “It’s a symbol that the Internet dreams of wealth and power are not just limited to a few small cities in the West Coast in the U.S.”
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