The Future of Alibaba

Last week the Chinese ecommerce juggernaut, Alibaba, filed the F-1 Form and officially embarked on an IPO journey to list its stocks on one of the U.S. stock exchanges. The offering is a big opportunity for enthusiastic American investors looking to invest in the Chinese technology sphere. If all goes well, Alibaba's IPO could potentially be the largest IPO ever.

Believe it or not, Alibaba was founded by a 49 year old English teacher, Jack Ma, 15 years ago in his Hangzhou apartment. The company started out selling a few items then, but today 70% of mail packages in China is due to Alibaba business. Currently, the company's valuation is ranging from $160 billion to over $200 billion - making it the most valuable tech company after Google.

Despite all the risks associated with the IPO and the company itself, Alibaba has a lot of room for growth which will be facilitated by the additional expected financing of $20 billion plus. Unlike many tech companies that look to expand beyond its own country, Alibaba plans to stay put, given that China has the largest number of internet users of 618 million and over 300 million of online shoppers. This means that more than half of internet users are yet to be converted to online shoppers. Moreover, many parts of China are still rural where the retail infrastructure and product quality are still underdeveloped, thereby making online purchases more attractive.

Additional to Alibaba's core competency as an online retailer, the company also has a 48% holding in China Smart Logistics Network, a shipping company that aims to provide a one day delivery service to anywhere in China in the next decade. Alibaba also has its Taobao Marketplace, a massive online retail and auction site much like Ebay. The firm also owns Alipay, an online payment processing system similar to PayPal with over 600 million users compared to 140 million PayPal accounts. To top the list, it also provides cloud storage service through Aliyun, their version of Amazon's Cloud Drive.

Alibaba is arguably a combination of all the big tech players: Amazaon, Ebay, Google, and PayPal. With all its services and the large amount of users, the company was able to bring in over $7 billion in revenue last year. It has also processed over 11.3 billion orders annually with 231 million active buyers or 49 orders per buyer annually.

Some more interesting numbers:-
* Alibaba processed $5.8 billion USD in transactions and 254 million orders on Singles Day 2013 (China's equivalent of Cyber Monday).
* Alibaba's logistics network delivered approximately five billion packages generated from Alibaba-owned marketplaces in 2013.
* Like most other Internet properties these days, Alibaba is keen on developing its mobile base, which stands at 136 million monthly active users as of December 2013. (By comparison, Alibaba cited China has 500 active mobile Internet users at large.)
* Alibaba posted $238 billion in gross merchandise volume across its Chinese online marketplaces last year with $37 billion alone from mobile GMV.
* Softbank boasts the largest stake in Alibaba with 34.4 percent of the pie, followed by Yahoo with 22.6 percent. Alibaba founder and executive chairman Jack Yun owns 8.9 percent.

To make sure that the I-banks don't botch this IPO, Alibaba is paying all of its underwriters extra for a smooth roadshow. So, do you think Alibaba is making the right choice listing its stock in the U.S. and where do you see Alibaba heading in the future?

Comments (3)

May 13, 2014

I think alibaba highlights a major trend in the importance of high-tech, not just TMT but also biopharma and clean tech, from asia. The size of these companies will serve as a platform for some serious R&D and innovation in the future that probably will shake our domestic innovation pipeline simply because innovation is "cheaper" there. Those innovations will also benefit from protectionism and gain exclusive access to the largest market in the world.

May 13, 2014

Unlike Amazon, Alibaba actually makes money. The Chinese internet marketplace today is less organized than ideal, but changes are a-coming.

Risk and opportunities await for Alibaba -

In the future decades the Chinese logistic industry will consolidate into an oligopoly (think Chinese version of UPS-USPS-FedEx). Many shipping companies are currently hiring actuaries and building warehouses where TaoBao sellers are concentrated. Shipping companies are under cutthroat competition and saw their margin plummet to close to none. A likely consolidation of firms not owned by Alibaba may increase the cost for TaoBao users and lower the revenue for Alibaba.

Competitors - as Ebay is outcompeted by Amazon, so will TaoBao done by SuNing, GuoMei and more so by JingDong. As goods are more available and more catalogued online, they will get sold more by bigger channels such as JingDong than individual sellers on TaoBao. As a result Alibaba can either transform and focus more on internet bank and payment, or web services.

These are the two main points I can think of. I'm sure that Alibaba is faced with more opportunities than ever, and how it deals with future changes will determine its success as a lasting company, not just a member of the Chinese internet bubble.


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May 13, 2014