Will Alibaba's IPO be the largest ever?

Will Alibaba's IPO be the largest ever?

"The IPO of the year" or even "The largest IPO ever": words are not enough when talking about Chinese internet giant Alibaba's IPO at the end of the week. It all started nearly 15 years ago in a single-room flat in Hangzhou...

On the verge of record-breaking IPO


If everything goes according to plan, then Alibaba will officially announce the introductory price for its 320 million shares. At first, a price range of 60 to 66 dollars (46 to 51 euro) seemed to be set, but the overwhelming feedback not only forced the pre-sale to close down earlier, but also boosted the introductory price to 70 dollars or even slightly higher.


That would meet all the requirements to get a more than successful IPO: based on 66 dollars, Alibaba would have been worth nearly 163 billion dollars and the company would have gathered 21.1 billion dollars in fresh capital. That would be the largest technological IPO ever, larger than Facebook (which gathered 16 billion dollars in 2012).


If it is 70 dollars per share, the result would be 22.4 billion dollars (17.5 billion euro), which would make it the largest IPO ever. Currently, the Agricultural Bank of China owns that record with 22.1 billion dollars in 2010.


"We were a bit crazy"


Who would have thought in 1999, when Jack Ma and 18 friends launched Alibaba from his one-room apartment in Hangzhou. "I did not know anything about the technical side and we had no money. We only had an idea, a conviction. We were a bit crazy", the former English teacher said in one of the videos Alibaba released in the final stretch to the IPO. Ma's goal was to offer small Chinese companies innovative technological solutions to help facilitate business, both in its booming internal market and abroad.


Whether they were "a bit crazy" or not, nearly 15 years later, the group has grown to become an ecommerce giant. It not only has international marketplaces (both B2B and B2C), it also owns service companies specialized in online searches and marketing, digital advertising, electronic payments (AliPay), cloud computing and data management (Aliyun) and even group sales like Groupon (Juhuasuan). It even has a bank,Yu'e Bao, that already controls 70 billion euro in funds.


Started with a failure


Nevertheless, Jack Ma's (who is compared to Steve Jobs and Bill Gates in China) entrepreneurial adventure started out with a failure. He started a company-geared internet phone guide in 1995, but that was not a success. "The day we went online for the first time, I invited several friends over, but because of the slow connection, we only managed to bring about half an internet page after 3.5 hours. I was so proud though: I had proven the internet existed", he said in an interview with The New York Times.


The China Yellowpages may have been the very first official Chinese internet company, it did not last very long. He tried again four years later, this time launching a platform that had to assist foreign companies to find Chinese manufacturers and vice versa. As a missionary, he traveled all across China and (merely) three years later, Alibaba's first profit has been attained.


80 % of Chinese online trade


Now, Alibaba's different websites channel 80 % of China's online trade. Taobao, Alibaba's eBay version, sells 500,000 items per minute, but the biggest hitter is TMall, an Amazon for consumer brands and China's largest retailer.


Combine those two and you get hugely impressive numbers: more than 7 million sellers offer nearly 800 million products, worth 190 billion euro in turnover, more than eBay and Amazon put together. According to the stock exchange prospectus, Alibaba processes 14.5 billion orders per year from 279 million active customers per year.


Chinese capitalism


Its success is not really a surprise, not for Jack Ma. "If I'm not a millionaire by the time I'm 35, you can shoot me", the incredibly ambitious Ma allegedly told his school friends. Nearly 50, he can call himself the richest Chinese person alive: Bloomberg believes his net worth is nearly 21.8 billion dollars (nearly 17 billion euro).


That was prior to the IPO, which will add another 820 million dollars even though he promised to give that to charitable organizations, mainly environmentally conscious organizations. That is another clever move as the Alibaba founder will help tackle 2 huge Chinese problems: increasing environmental issues and the divide between rich and poor people. That has become an increasingly sensitive issue in communist China.


"Even if I give away 99 % of my wealth (and I plan to), then I still have more than I need", he recently said. That is something the Communist Party will love to hear, probably because Jack Ma has supported charity funds controlled by the wives of important dignitaries. He also does "excellent business" with banks and state-owned companies led by families of influential party members.


Huge war chest


It remains to be seen what Alibaba will do with its new 21 billion dollar "war chest". The Chinese company has been buying American companies left and right these past few months, which has made Amazon and eBay quite nervous.


One thing is certain: Alibaba will invest quite a bit into mobile trade development. Half a billion Chinese people are already hooked on their smartphone and the majority buys and sells using Alibaba apps. Jack Ma has made it no secret that the rest of world will quickly follow suit, starting with the United States and Europe. "Yes, our ambitions are worldwide", Ma said without blinking.