Chinese tech giant Alibaba sent waves through Silicon Valley when the formidable Internet company filed paperwork for an initial public offering that is poised to be one of the largest in history, and will challenge the might of tech icons such as Yahoo Inc., eBay Inc. and Google Inc.
With its entry into the US stock market, Alibaba Group Holding Ltd., an e-commerce juggernaut with a valuation estimated between $150 billion and $180 billion, will stake a position among the most powerful tech giants, possibly pressuring companies such as eBay to rethink how they do business or risk losing customers.
“EBay, Amazon and Google (should) be scared,” said Matthew Turlip, an analyst with PrivCo financial group. “I think Alibaba is definitely going to be a major player. There’s no reason for them not to go after the U.S. market. It’s not a matter of if, but when.”
Alibaba did not price shares in the IPO filing and gave only a placeholder target amount of $1 billion, but some analysts expect the company could raise more than $15 billion, setting it close to or surpassing Facebook’s record-breaking $16 billion IPO in 2012.
Hong Kong-based Alibaba’s platforms include online shopping, business-to-business sales, online payments, wholesale trade and cloud computing—often described as a combination of eBay and Amazon, and at a fraction of the price. According to filings with the U.S. Securities and Exchange Commission, Alibaba’s retail marketplace processes 11.3 billion orders a year worth $248 billion.
About 80 percent of all Chinese e-commerce transactions go through Alibaba sites; on Singles Day last year, a popular holiday in China for online shopping, the site processed $5.8 billion in purchases. By comparison, eBay’s total sales on its online marketplace for all of 2013 were $6.8 billion.
Alibaba’s stock debut is a particularly big deal for Yahoo, which owns 24 percent of Alibaba and is expected to sell nearly half of its stake in the IPO. That should produce a windfall of cash for Yahoo, which could help CEO Marissa Mayer continue her recent spree of buying smaller tech companies.
But Alibaba’s IPO will also remove a major reason for the recent surge in Yahoo’s own stock price; analysts say investors have bid up Yahoo shares largely because of excitement over the flood of expected cash.
“This is going to have a huge effect on Silicon Valley,” Turlip said. “It’s been the primary driver of Yahoo stock over the last several quarters.”
The IPO filing also shed more light on the financial performance of a company that has, until now, offered only tantalizing glimpses of strong growth. According to filings with the U.S. Securities and Exchange Commission, Alibaba sales were $5.55 billion for the fiscal year ending in March 2013, a 72.4 percent increase over the previous year. The company’s profit for the previous year was $1.39 billion; but from April through December of last year, the company more than doubled that, to $2.85 billion. Per-share earnings also skyrocketed from 57 cents to $1.23 for the same time periods.
The cash-flush, and about-to-be-flusher, Alibaba poses a formidable challenge to companies such as Google and Yahoo, which have led Silicon Valley in acquisitions—Yahoo made 22 deals last year for $1.2 billion—and are looking for new hot tech companies to scoop up. Fresh off a blockbuster IPO, Alibaba will be poised to make more and bigger acquisitions, hoping to steal some Silicon Valley talent and add new technology to its repertoire, experts say.
In the past few months, Alibaba invested $215 million in Mountain View, Calif., mobile messaging service TangoMe; kicked money into a $250 million round for San Francisco ride-sharing app Lyft; and led a $206 million investment into ShopRunner, a delivery service for online purchases.
The IPO will also provide a huge cash infusion for Silicon Valley investors who have a stake in the company, and who can use the money to reinvest in other promising startups. Some experts say the new cash from Alibaba will help balance out a long-standing imbalance in the venture capital industry—that firms are spending more money than they raise—and will be a boon for companies raising money within a year to a year and a half.
“If you have a half a percent of something that is going to be worth $150 billion, that’s still a huge amount of money,” said Michael Greeley, a partner with Foundation Medical Partners.
There is no deadline for the company to begin trading, and some analysts expect trading may not happen until the fourth quarter of the year. Companies may announce pricing and begin a road show—when executives hold meetings with potential investors to drum up interest in their company—within 21 days of an IPO filing.