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What is the largest e-commerce company on earth?

Alibaba Group (ticker: BABA) is a Chinese e-commerce business, founded in 1999, that has grown to become one of the largest businesses worldwide. Altogether, it features close to a billion products which makes it easy to understand why it is one of the 20 most-visited websites in the world. Alibaba could end up as the largest IPO (initial public offering) in global history when it debuts on the NYSE August 8th (8 is considered a lucky number in Chinese culture), yet it remains a mystery to most investors, businesses, and consumers located outside China.

 

Company

IPO Date

IPO Size (in billions) 

Alibaba

8/8/2014

$20.16*

Facebook

5/17/2012

$16.01

General Motors

11/17/2010

$18.14

Visa

3/13/2008

$19.65

* Bloomberg projections as of 6/30/2014

Why is Alibaba worth THAT much?

  • Alibaba handles 80% of all online retail sales in China and accounts for over 60% of the parcels delivered in China.

  • Alibaba’s most popular site, Taobao, is a consumer-to-consumer platform similar to Ebay. It amassed $177 billion in transactions during 2013.

  • Its second most popular site, Tmall, is a platform with over 70,000 brands/retailers which handled $70 billion worth of transactions in 2013.

  • For some perspective, Amazon ($100 billion) and Ebay ($54 billion) could not even combine to match Taobao’s 2013 total transaction value!

Who will be buying Alibaba stock?

Shares of an IPO are primarily distributed to institutional investors, mutual funds, and hedge funds who are the biggest clients of the major Wall Street banks that manage the sale of the shares (underwriters). On average, these brokerages only allocate 15% of their initial offering to retail investors making it difficult to get anything more than a small lot of shares. If it goes anything like the last large technology IPO, Facebook, there will be wild swings in the price after it begins trading in the open market. In fact, if an investor was “lucky” enough to buy $10,000 worth of Facebook shares on its first day of trading (May 18, 2012), the market value of the investment was less than $10,000 until the market closed on August 5, 2013. It is difficult enough to predict where any individual stock is headed, let alone a stock that is being issued to the general public for the first time. It would only increase the risk and volatility in a portfolio.

Having said that, many investors will eventually hold Alibaba. As a Chinese company, it will be considered an emerging market stock that will be added to many diversified stock market funds in proportion to its size of the total stock market. Th is way, many investors would safely experience Alibaba’s performance in the global markets.

Sources: Anderson, Kyle. “Why Alibaba IPO Value Estimates Keep Climbing – Up to $221 Billion.” Money Morning. N.p., 1 July 2014. Web. 3 July 2014. Wei, He. “Alibaba, Partners Establish National Logistics Network.” China Daily USA. N.p., 29 May 2013. Web. 3 July 2014.

This information is provided for educational purposes only. It should not be construed as a recommendation or as personalized investment advice.

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