Alibaba Raises $21.8B in Initial Public Offering

http://www.nytimes.com/2014/09/19/business/dealbook/alibaba-raises-218-billion-in-initial-public-offering.html

by SuperKlaus • 12 years ago

213 106 12 years ago

aresant• 12 years ago

"[Yahoo] will have raised nearly $8.3 billion through the offering"

If I'm reading that right Yahoo stands to triple their cash position almost overnight which today stands at around $4b.(1)

Given Marissa Meyer's appetite for acquisitions this puts them into a potentially interesting new ballpark of scale.

(1) http://finance.yahoo.com/q/bs?s=yhoo

RSASecure• 12 years ago

You would have to consider the after-tax amount, which is going to be a bit less...around $5-6 billion.

dmix• 12 years ago

They could buy an Instagram or two.

bane• 12 years ago

Gosh....that's barely more than WhatsApp. Woulda done better selling it to Facebook.

More seriously, the Economist put a valuation at $55-$120b. This puts it at $168b. Or 9 WhatsApps. The IPO was expected to raise $20b, so this is really good.

It took 3 years after founding in 1998 to reach profitability.

It defies most conventional notions of a startup, despite having started in somebody's apartment. It's unbelievably unfocused, it does pretty much every kind of business you can do on the Internet.

It might be one of the first Asian-style conglomerates to be born on the Internet.

There are plans for it to open brick and mortar stores.

https://en.wikipedia.org/wiki/Alibaba_Group

xux• 12 years ago

It defies most conventional notions of a startup... It's unbelievably unfocused, it does pretty much every kind of business you can do on the Internet.

It defies the Silicon Valley notion of startup. China's internet market is still new, and Alibaba is like Yahoo in the old days - it does everything online.

Hopefully it doesn't turn out like Yahoo.

samstave• 12 years ago

It sells more product than both ebay and amazon combined.

majani• 12 years ago

and if you look at Alibaba history, Jack Ma was admittedly one of the speculators who rushed online in 1999 to make a buck. Silicon Valley historians heads must be spinning :)

hbbio• 12 years ago

It doesn't turn like Yahoo.

Yahoo made the super wise decision to buy part of Alibaba a few years ago, and now the whole Yahoo is worth nothing more than its share of Alibaba!

jacquesm• 12 years ago

It's unbelievably unfocused

That's because Jack Ma is unbelievably focused.

foxhedgehog• 12 years ago

And also because he does not face competition.

w1ntermute4• 12 years ago

It's unbelievably unfocused, it does pretty much every kind of business you can do on the Internet.

This is standard in China, as well as other Asian nations, which have high-context cultures[0]. People in high-context cultures value familiarity more than people in low-context cultures. What we see as a lack of focus is seen by Chinese consumers as part of Alibaba's value proposition.

0: http://en.wikipedia.org/wiki/High-_and_low-context_cultures

idlewords• 12 years ago

This kind of Orientalist armchair psychology is standard in high-bullshit cultures like ours[1].

The reasons for Alibaba's success might have more to do with the unique political and economic conditions that obtain in China than any special feature of the Chinese consumer mind that makes them favor lack of focus.

wodenokoto2• 12 years ago

There is no such thing as high and low context cultures. ALL culture is high context.

netcan• 12 years ago

$20b is money raised. The market cap is expectd to be 160-$200bn, almost half the size of Google.

skuhn10• 12 years ago

Alibaba going for a higher selling price just makes the continued undervaluing of Yahoo itself increasingly hilarious. At some point, I would think someone will want to buy them for all of this free money they have sitting around.

  YHOO market cap : 42.3bn
  + liabilities : 3.7bn
  = 46bn (to own outright)

Meanwhile:

  Cash on hand = 1.1bn
  + Other assets = 15.3bn
  + Cash from Alibaba sale = 8.3bn
  + Value of remaining Alibaba stock = 22bn
  + Value of Yahoo Japan stock = 9bn
  = 55.7bn (of value, if you can unlock it)

So simply by buying them, firing everyone and selling everything in a firesale, without even cashing those checks from advertisers, you can make $9.7bn. Seems like a sweet deal.

dragonwriter2• 12 years ago

You are kind of assuming that you can have a "firesale" that realizes the full current market value of the $31 billion in Alibaba and Yahoo Japan stock. That's somewhat improbable.

skuhn10• 12 years ago

True, this is very naive and presumes you can sell everything for their accounting values without moving the market price or people realizing what you're doing.

However, $17bn is a pretty big window of error, and this isn't even taking into account the crazy notion that you could keep running the actual business. It has revenues of $1bn a quarter, nothing to sneeze at.

imaginenore4• 12 years ago

Stock is not cash. You can't sell it at the current value price. You can't even sell 0.1% of it without driving the price to zero. The liquidity is just not that large.

skuhn10• 12 years ago

Consider that if I have a bunch of gold bars sitting in a vault somewhere, I don't have to sell them to make money off of them. I can borrow money against their perceived value, currently practically for free.

This becomes particularly interesting if I can buy $100 of gold bars for $50. Even if I can't sell them, I can use them to my advantage.

harryh2• 12 years ago

Alibaba sold a hell of a lot more than 0.1% of itself today. About 125 times that number. And the price wasn't driven to zero. There's a lot more depth in US equities markets than you think.

ChuckMcM• 12 years ago

Heh, and people nit picking that you can't get 17B$. Sheesh, lets just sell the crap for 10 cents on the dollar and get $1.7 BILLION in cash for "free". That would make a hell of an entry on the old 1040

   proceeds from short term capital gains: 1,700,000,000

I'm sure someone at Goldman Sachs is all over this :-)

arasmussen• 12 years ago

1,700,000,000

You missed a few digits there ;)

rthomas63• 12 years ago

So should I buy some Yahoo stock?

baddox3• 12 years ago

Why would that follow?

curun1r• 12 years ago

I think you've got a mistake with how you've figured in liabilities. They should be subtracted from assets, not market cap. So, using your numbers, the difference is closer to $10b, not $17b.

skuhn10• 12 years ago

You're right, I adjusted the numbers a bit. That leaves $9.7bn of free money laying around, if you can get at it.

(minus taxes and discounts on the value, etc.)

richard_cubano• 12 years ago

This has been covered ad nauseum elsewhere in the financial press, but you're assuming Yahoo pays zero corporate taxes on its sale of Alibaba shares. That's not how the world works. You need to deduct something like 40% from the value of the "Cash from Alibaba sale" and "Value of remaining Alibaba stock" and probably also "Value of Yahoo Japan stock". My bet is if you do that, you'll come up with a number that makes sense given Yahoo's market price.

skuhn10• 12 years ago

Zero chance any real company will pay 40% in taxes on stock sales. They have their ways.

http://online.barrons.com/news/articles/SB521330210524938232...

downandout4• 12 years ago

Capital gains are 20%, not 40%. And these are most assuredly capital gains. On $8b they'll pay $1.6b in taxes.

jonknee• 12 years ago

There are still a lot of tax questions. Some explanation:

http://online.barrons.com/news/articles/SB521330210524938232...

Investors now value Yahoo on a sum-of-the-parts basis. The core business could be worth $8 a share and its cash and Yahoo! Japan stake could be worth another $8 a share (assuming a full tax bite on the sale of Yahoo Japan). The 140 million shares of Alibaba to be sold in the IPO should net after taxes around $6 billion, or $6 a share. That totals about $22 a share.
So, Yahoo's share price direction probably hinges on the value of the remaining Alibaba stake—based on the Alibaba share price—and the tax treatment of the likely sale or disposition of that stock.
Bulls argue that Yahoo's shares could trade into the $50 range if Alibaba appreciates sharply after the IPO and Yahoo can find a way to get its remaining stake to holders in a tax-efficient way. This also suggests that Yahoo shares could find support around current levels given the value of that Alibaba stake.

ww520• 12 years ago

I believe Yahoo the company is still strong but the stock has probably topped out currently. Most of the good news have already factored into the price. I sold all my shares couple days ago, on the basis of selling ahead of a definite news event. It had been a good run-up since got it on the teen's.

rahimnathwani• 12 years ago

What are the 15bn of 'other assets'? Presumably they're not liquid assets, so you'd need to figure out whether their value on the open market would be anything close to book value.

jimbokun• 12 years ago

This reminds me of when AAPL was getting close to the value of cash and assets, pre-Jobs return. Was the perfect time to buy AAPL, but of course not clear whether Yahoo has a Jobs at Apple kind of turnaround in them.

jonny_eh2• 12 years ago

Until Mayer unveils a product as impressive as the iMac (or iPod), I wouldn't jump on that stock just yet.

jarsin• 12 years ago

I'm in someone give me a $46Bn loan!

GigabyteCoin• 12 years ago

But how much would the Yahoo Japan stock really be worth if the world knew somebody was liquidating the entire Yahoo company?

I think that's your $9B profit right there.

wodenokoto2• 12 years ago

Why would they change? Except for sharing the name and some cross stock holding, they are separate companies. Last I checked, Softbank was the majority stockholder, but I'm guessing that has changed since Yahoo Mobile launched.

downandout4• 12 years ago

No need to fire everyone. Yahoo made $38M net profit on operations last quarter. All they would have to do is maintain their current assets and employees and the owners get $160m/year in free cash. Then, using their effectively unlimited supply of capital in the form of Alibaba stock, they could make some very smart acquisitions (think for example of buying an instagram for $1b cash and growing it to what it is today) and they could pretty quickly be a $100b company.

I am not not sure if Marissa is up to the task, but they do have a legion of smart employees and an insane amount of capital. If they fail to build meaningful growth now, it's her fault.

grinich• 12 years ago

Why don't you think Marisa is up to the task? She seems more than capable to me, and has done a remarkable job leading Yahoo so far.

skuhn10• 12 years ago

They do still have some smart people, but I don't think anyone or any amount of money can turn things around for them in any meaningful way.

Their pre-Marissa acquisitions were almost universally wastes of time and money. It's too soon to tell about the recent acquisitions, but I don't see them making that $1bn back from Tumblr in my lifetime.

Yahoo is an also ran, constantly playing catch up and trying to emulate the successful behaviors of other companies. The negative public perception of a lot of their services in the technical community is mirrored inside the company, and there is nothing anyone can do to force positive change. Things that Google and Facebook and others announce were projects 3-4 years ago inside Yahoo, that never launched. Once you see that happen a few times, you get sufficiently disillusioned and leave. I don't think for all of Marissa's impact that this has fundamentally changed.

For example: Yahoo employees have to use Yahoo Mail for all of their work e-mail. The web interface only, with ads. It's a great exercise in dogfooding, IF you commit to rapidly iterating on the product to make it best of breed for your employees (not to mention real users). But that will never happen at Yahoo, there is no will to make an excellent product for a technically demanding audience.

Now your employee productivity suffers, which means every other product in the company suffers. Eventually you will have to let them go back to using e-mail the way they want to or they will find a way to screen scrape the messages into fetchmail in order to get back to work.

adventured3• 12 years ago

You can't pay face value on an acquisition of a company like Yahoo.

Try adding about 25% to 40% as a premium.

There went your calculated profit.

TomGullen• 12 years ago

Value of remaining Alibaba stock

Who'd want to buy stock from a company firing everyone and shutting down?

WalterSear2• 12 years ago

Yahoo, not Alibaba.

arbuge• 12 years ago

The big issue seems to be whether you can trust management not to burn away the cash from Alibaba on unwise acquisitions, initiatives, and so forth.

It's a common problem in the stock market when you find stocks selling for less than your analysis of liquidation value. You may be right that at this snapshot in time, that's actually the case. But since you're a minority investor without control, you can't force a liquidation or breakup of the company at your convenience.

samolang• 12 years ago

If you include a 35% tax on the sale of Alibaba shares, then the values drops to $45.1B.

http://online.wsj.com/articles/alibaba-ipo-to-give-yahoo-win... http://blogs.wsj.com/digits/2014/07/21/how-yahoo-could-skirt...

skuhn10• 12 years ago

To briefly follow up now that Alibaba had its first day of trading and shot up in value:

  YHOO market cap : 41.86bn
  + liabilities : 3.7bn
  = 45.56bn (-0.44bn)

  Cash on hand = 1.1bn
  + Other assets = 15.3bn
  + Cash from Alibaba sale = 8.3bn
  + Value of remaining Alibaba stock = 37.7bn
  + Value of Yahoo Japan stock = 9bn
  = 71.4bn (+14.3bn)

Now we're at 25.84bn of "free" money. Many, many companies are valued at well above their on-hand cash and assets (sometimes tens or hundreds of times higher), so I continue to think that Yahoo is severely undervalued on paper.

If people are so negative about Yahoo that they would rather leave $25bn laying on the ground rather than be associated with them, I think Yahoo has an insurmountable obstacle to future success.

badamson• 12 years ago

Your "other assets" line seems too high....I believe you're double counting their Alibaba & Yahoo Japan stakes...."other assets" s/b $11.3B, no?

jacoplane• 12 years ago

Planet Money had a decent piece on Alibaba recently: http://www.npr.org/blogs/money/2014/09/03/345310125/episode-...

baddox3• 12 years ago

Though it did not claim the title of biggest initial public offering ever, Alibaba will still lay claim to having held one of the biggest stock sales on record, surpassing offerings from Facebook and General Motors.

If you're curious (I was), Wikipedia puts the Agricultural Bank of China as the largest IPO, with Facebook at number 6.

http://en.wikipedia.org/wiki/Initial_public_offering#Largest...

marco1• 12 years ago

Yet it was America's biggest IPO to date, right before Visa Inc. with $19.7B. The other three went public in China (Hong Kong Stock Exchange).

dave1619• 12 years ago

Here's a link to the Alibaba IPO Roadshow Presentation, https://www.youtube.com/watch?v=sa9R2SqZsHM

I highly recommend watching it. To save time, watch it on Chrome at 2x speed.

imjk• 12 years ago

Sorry, how do you watch it at 2x speed on in Chrome?

karanbhangui• 12 years ago

1. Enable HTML5 at http://youtube.com/html5

2. Click the gear icon in the bottom right of the player and change selection in the "Speed" dropdown

iMuzz• 12 years ago

request HTML 5 player through Youtube.

https://www.youtube.com/html5?gl=BE

P.S. You could easily google this!

vrama• 12 years ago

Yahoo can buy 30 tumblrs with the alibaba money. That's neat.

pstrateman• 12 years ago

This seems like a pretty bad deal for foreign investors.

http://www.forbes.com/sites/investor/2014/09/15/four-reasons...

saym• 12 years ago

I don't know why more people aren't talking about this. The Motley Fool guys went over this in their podcast yesterday. I'm in full agreement.

http://marketfoolery.libsyn.com/marketfoolery-09182014

piettro22• 12 years ago

Well....you guys have to look at the bigger picture: Alibaba was rejected by HK stock market the first time around, then Jack decided to take it to NYSE. Of course 21B is nothing in comparison to the other big brothers like Facebook, but ask yourself this question: what really is Alibaba doing in China? For one, Alibaba is about trading on the international scene, and its seed Taobao is like eBay China version; then they are into car manufacturing as well, not to mention Alipay being the paypal of modern day China....clearly, that 21B he raised can't even cover a lot of the expenditures for development. What Jack really is doing is to get his company that global recognition. Any of you can name ONE brand/company that based in China on top of your head? Well, that's what Jack is trying to do. You think he's unfocused? How about this: for someone who owns the e-commerce platform of the world's 3rd biggest country, he is utterly focused on becoming "China's international brand." Don't forget, China is the jumping board, and Jack is the pioneer. Once he claimed first, who will remember the ones from the subsequent ranks?

lurkylurk• 12 years ago

A bit off topic: Is there a good site to keep track of all tech IPOs and including historical data and upcoming/withdrawn IPOs?

e15ctr0n• 12 years ago

Professor Jay Ritter of the University of Florida is a subject matter expert in this area:

http://bear.warrington.ufl.edu/ritter/ipodata.htm

vbs_redlof• 12 years ago

http://www.nasdaq.com/markets/ipos/

Includes withdrawn, priced and filed IPOs. Very clean data, straight from SEC Edgar filings.

Alibaba Raises $21.8B in Initial Public Offering

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