The much awaited initial public offering (IPO) of China’s Alibaba Group became a reality this Tuesday as it filed to sell stock publicly to investors in the United States. Alibaba, founded by Jack Ma, is China’s largest online retailer, ” with merchandise volumes that lag only Walmart, worldwide.” The Alibaba IPO represents what is likely to be the largest U.S. IPO since Facebook went public with its $16 billion offering two years ago. The IPO’s lead underwriters are Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan Chase, Morgan Stanley, and Citigroup.
According to initial analyst projections, when it goes public, Alibaba will likely have a market capitalization of roughly $200 billion, placing it behind larger tech companies such as Google and Apple, but well ahead of Facebook, eBay, and even Amazon. The IPO has been eagerly anticipated in the United States and presents one of the best opportunities for American institutional investors to tap directly into China’s economic growth.
Founded in 1999, Alibaba has benefited from the general rise in incomes and living standards in China, which have prompted as many as 300 million Chinese consumers to turn to the Internet for their commercial needs. According to the New York Times, the company processes over 11 billion orders a year with each active user of the site making, on average, 49 purchases. Further, “76 percent of all mobile retail in China” is processed by Alibaba.
As a service, Alibaba is distinctly Chinese and succeeds at differentiating itself from Western competitors like eBay and Amazon, and even Japan’s Rakuten. According to CNN Money, Alibaba’s two top e-commerce portals, Taobao and Tmall, mimic the physicality of a crowded Chinese marketplace in their web design, cramming several products onto one page. Additionally, to emulate the broad cultural practice of marketplace haggling, both services offer a chat service connecting prospective buyers with sellers for price negotiation. Mimicking other aspects of China’s marketplaces, Alibaba’s e-commerce services suffer from counterfeit goods which have not hindered its growth so far but could become a problem as it grows beyond its IPO.
The Alibaba IPO further demonstrates the willingness of major Chinese firms in the technology field to enter into Western capital markets in search of further growth. While most Chinese private enterprises have limited themselves to operating primarily within China and neighboring Asian countries, technology companies have led the charge towards the United States and other markets. Before Alibaba, Tencent Holdings, a major Chinese social networking and gaming conglomerate, placed a bid for popular California-based messaging app Snapchat.