5 things you didn't know about Alibaba
Alibaba is the toast of Wall Street as it heads into what may be the largest initial public offering in history.
American investors can't seem to get enough of the Chinese e-commerce king. The company has been making presentations about its business to potential investors, and the response has been so enthusiastic that it now plans on raising its offering price to $66 to $68 a share from a previous range of $60 to $66.
That increased price would give the company a market value of more than $170 billion. In comparison, that's three times the size of General Motors (GM) or Costco (COST) and five times the size of Delta Air Lines (DAL). Alibaba hopes to raise $25 billion in the stock offering, which would top Facebook's (FB) $16 billion IPO in 2012 and Visa's (V) nearly $18 billion market in debut in 2008.
Is a Chinese online vendor really worth that much? Investors will have their say when the stock begins its first day of trading, expected later this week. While Alibaba may be a household name in its own country, many Americans still don't know much about the company or the IPO that has Wall Street riveted.
Here are five things to know about Alibaba:
It's huge in China. The company gets 80 percent of its revenue from Chinese retail sales, mostly through the Taobao and TMall sites. Many Chinese shoppers prefer buying online to traveling on crowded, polluted streets, writes Beijing-based Scott Cendrowski of Fortune. Alibaba draws everyone in, he adds, selling items as small as napkins, plant fertilizer and cat food at low prices and with free shipping. It's become a way of life in the country. Alibaba's websites boast 231 million active buyers placing 11.3 billion orders a year.
It's not like Amazon. Alibaba doesn't have massive warehouses for all those orders. Rather, the company just serves as the middle man, connecting buyers with sellers (often small businesses with no other way to reach an audience of that size). The company gets a commission from some larger retailers and sells ads and search placement. It could be seen as a threat to Amazon (AMZN), eBay (EBAY) and even Google (GOOG), but is not a direct competitor to any one of those.
Its structure raises questions. Alibaba is Chinese, but is incorporated in the Cayman Islands and will list on U.S. markets -- an unusual setup that can make an investor's head spin. China has prohibitions on foreign ownership, which means U.S. investors won't actually own the company's Chinese assets. Instead, investors will own a Cayman Islands company called Alibaba Group Holding Limited. The structure is risky and may even be illegal under Chinese law, The New York Times reports.
It won't be in the S&P 500. Because of that structure, Alibaba won't be a part of the S&P 500, which only includes companies domiciled in the U.S. It will get ignored by other major indexes as well. That could mean less buying from institutional shareholders.
Its founder has a fascinating story. Jack Ma was a poor schoolteacher who first used the Internet while visiting the U.S. in 1995. Ma returned home and started an online listing of Chinese companies looking for international business, but it was a flop, Business Insider reports. Four years later, he tried again with a company he called Alibaba. Ma's parents were professional performers, and he is such a bold and animated CEO that reporters have nicknamed him "Crazy Jack." The 49-year-old's net worth is estimated at nearly $22 billion.
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