'Bigger than Facebook' Alibaba IPO offers Eastern promise

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LONDON (ShareCast) - After much speculation and expectation, Asian e-commerce giant Alibaba is finally ready to go public. Not only that, the company is due to list on the US stock market which ultimately gives it a more global investor appeal than if it were to list in its homeland of China.

Listing in New York (Frankfurt: HX6.F - news) allows Alibaba to create a dual-class structure of stocks that would enable its founders and senior managers to retain their tight grip on the company.

We all know of eBay and Amazon but because Alibaba operates primarily in China, few outside the financial world will have paid much heed to what is easily the largest e-commerce company in the world.

E-commerce has become especially important, as Chinese consumers increasingly flock to online marketplaces rather than traditional physical retailers.

Even bigger than eBay and Amazon combined, the online group has multiple revenue streams - it is a business-to-business (b2b) website which links up global businesses seeking suppliers.

Largest IPO on record?

The initial public offer (IPO) is set to be one of the largest on record and the hype associated with it will more likely rival that of the Twitter (NYSE: TWTR - news) and Facebook (NasdaqGS: FB - news) floats and should provide a large boon to Alibaba investors Yahoo (TLO: YA-U.TI - news) and Softbank (Xetra: SFT.DE - news) . The company claims to have had 129.1m monthly active users as of year-end, compared with Twitter's 241m.

Unsurprisingly, the chance to buy into what is potentially the next Facebook has generated a significant amount of investor interest. It's becoming increasingly likely that the IPO could rival that of Facebook's $104bn (£67bn) offering.

IG (LSE: IGG.L - news) 's grey market, where traders can take a position on where they see the company market cap at the close of the first day of conditional trading, has yet to see a single seller by the time this article is written. This has pumped up the client expectations for a market capitalisation of around $250bn.

What it means for Yahoo

Among the biggest beneficiaries of Alibaba's success has been Yahoo, which maintains a 24% stake in the Chinese company. Presently the consensus view is that a minimum of $16bn worth of capital will be raised when it goes public, Yahoo will be required to sell just under half its stake - not bad for a day's work.

For now, the $40 mark for Yahoo is something of a barrier to upside and of course there remains the question of what CEO Marissa Mayer will decide to do with these funds.

The investment of $1.1bn in Tumblr last year has yet to show any real return on investment so the onus will be on Yahoo to provide investors with a reason for sticking around. Cash is not necessarily a solution for growth issues.


Brenda Kelly
Chief Market Strategist at IG

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