Why all the fuss over Alibaba, anyway?

17 Sep 2014

When Alibaba goes public on Friday, it is expected to become the largest listed company in the US, but what is it about the Chinese e-commerce giant that would make it one of the biggest stock-market debuts in history, valued at US$170bn?

The US$170bn boosts Alibaba past e-commerce giant Amazon.com’s US$160bn market capitalisation.

Alibaba had previously been valued at US$155bn, but its popularity with foreign investors prompted the company to recently increase its initial public offering (IPO) to a maximum of US$68 a share, Quartz reported.

The original share price range topped out at US$66, which would have valued the company at US$163bn, Quartz reported.

The shares are expected to begin trading on the New York Stock Exchange, under the symbol BABA.

The Alibaba business

Not bad for a company Jack Ma, his wife and friends founded in an apartment in Hangzhou, China, in 1999.

Alibaba is now the country’s largest e-commerce website. The company has 80pc of China’s market share, headquarters in Hong Kong, and leader in CEO Jonathan Lu. On the Alibaba website, online shoppers are buying anything from agrochemicals to dental supplies, and sellers are flogging everything from yarn to solar cells.

Look deeper, however, and Alibaba is a collection of various online marketplaces for consumers and businesses – think eBay and Amazon.com combined.

During its lifetime, Alibaba has acquired profitable start-ups encompassing cloud services, digital enterprises, and mobile search technology, and acquired majority and minority stakes in companies such as microblogging service Weibo, China Vision Holdings, and car-sharing service Lyft.

Money maker

Alibaba makes its money primarily by charging advertising fees to merchants looking to promote themselves in its online bazaars that have 279m active buyers and 8.5m active sellers, according to the The Wall Street Journal.

What makes the company so lucrative is the volume of annual sales it is generating in China – US$250bn during 2013 alone, Invezz reported, which make up six out of every 10 packages posted by China Post.

Alibaba’s most recent financial results reveal US$7.3bn in revenue, a year-on-year growth of 55pc.

Another reason for Alibaba’s success? Ma himself.

“The company relies heavily on its CEO and founder ‘Crazy Jack’ Ma,” Quartz reported. “He has been called Asia’s Steve Jobs; a true visionary with as much swagger and eccentricities as Richard Branson.”

Ma is quite likely one of China’s wealthiest men, and if the lead-up to Alibaba’s IPO is anything to go by, he will become a lot wealthier come Friday.

Alibaba online image via Shutterstock

Tina Costanza was a journalist and sub-editor at Silicon Republic