Philadelphia, Pennsylvania – (StockNewsDesk) – 09/21/2014 — Alibaba’s IPO has captured much of the spotlight in recent weeks from the financial media, investors, and speculators. In some ways, it marks a shift of the center of the commerce world to Asia from the Western hemisphere.
The IPO has become an item of debate in some areas; including whether it is fairly priced, is the unique ownership structure fair to shareholders, and will the company grow into its rich valuation. Many are confident that Alibaba will continue to grow, thus making the current stock price a bargain. Others are less sanguine about Alibaba’s prospects and point to the poor transparency of many Chinese companies about their financials.
At least on day one, Alibaba and its CEO, Jack Ma, justified the bulls, as the stock was up more than 35%. Earlier in the week, the underwriters priced the stock at $68. This was adjusted from the initial estimate in the low 60s because of strong demand from institutional investors, such as hedge funds, pension funds, and sovereign wealth funds.
Strong IPO Market
The stock closed at $93.89, a smashing success for the underwriters and Alibaba. Demand was strong for the stock as it opened well above the listing price. Those who bought into the IPO were rewarded, as well. One unique aspect about Alibaba relative to other IPOs is there is no lockup period. Typically, for new issues, lockup periods ensure that a torrent of supply does not knock down the stock price, a measure of safety for early investors. Some speculated that this may put downward pressure on the stock price, especially given the stock’s huge float and size.
2014 has been a good year for the IPO market, as risk appetites remain strong. Alibaba’s successful debut will give confidence to the companies that are looking forward to listing their shares soon. One note is that while US based companies IPOs have been strong this year, Chinese IPOs have been weaker with an average annual loss of 10% in these companies.
Alibaba raised $21.8 billion in its IPO and already is one of the largest technology companies in the world. Slowly, over the next few months, because of its large market cap, it will certainly be added by many ETFs, indexes, and mutual funds.
One interesting statistic to put Alibaba’s massive size in context is that its market cap, at $200 billion, already exceeds giants like Twitter, Facebook, or Amazon. Another way to appreciate it is so far this year there have been 193 companies, which were publicly listed; in total, they have a market cap of $180 billion, which is less than Alibaba’s market cap.
Although doubts linger on whether a company with $6 billion in revenue should justify a market cap of over $200 billion, Alibaba passed its first test with a successful IPO. The company, aware of concerns over Chinese companies, was determined not to repeat the bungling of Facebook’s IPO in 2012. So far, Jack Ma has to be happy with the company’s huge haul. Now, the next question is how Alibaba will use the cash created from the IPO. Some are speculating the company may turn around and buy Yahoo, to give it an instant presence in the U.S.