The Alibaba IPO story has been running for months now, but it seems we are close to the finish line, and the NYSE or Nasdaq is about to open its arms to the US$150 billion to US$200 billion behemoth. With such a large valuation, based (so far as we can tell from indirect reports relating to values through Yahoo, as Alibaba has not published its financials to date) on revenue in excess of Amazon and eBay combined, and with healthy accompanying profits (unlike many recent tech IPOs in the US), it is hard to believe the company looked elsewhere than the US to IPO.
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But it did – with the US exchange’s liberal attitude to retain control for the founders (a la Zuckerberg for Facebook) finally swinging the location in its favour. Does that reticence to embrace the US indicate a wider dilemma and challenge for the business: to grow, it will need to mine the US retail market, but can it do so in the face of eBay and Amazon? Will it be able to replicate the success it has built in China internationally?
Alibaba is currently fighting a war in its backyard – the large Chinese internet businesses are diversifying at an astonishing rate (think Tencent, Weibo, Youku, etc.) – and Alibaba is no slouch in reacting to opportunities to maintain and increase its influence within China. One such effort is the recent UCWeb deal – speculated to be the largest Chinese internet deal to date (recent announcements also concern mobile telecoms and a football club).
Presumably, with an eye on the future and life post-IPO, Alibaba is also having to navigate waters it does not know so well. Last week, it announced that it would be launching its first online marketplace in the United States – 11Main.com. Earlier this month, Alibaba also signed separate deals with SingPost and Australia Post to form a strategic collaboration and attract more retailers to its online marketplace, Tmall.com. Pursuing the biggest IPO in history, fighting to control the China marketplace, implementing a wide-ranging diversification strategy and trying to gain a foothold in the international arena is a lot to be contending with at any one time.
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The irony in all of this is that Alibaba’s value is solely predicated at this stage on its ability to dominate the China market and monetise the estimated 618 million internet users (vs 267 million in the US by way of comparison) and that in fact substantial value for a China internet business can be achieved without any internationalisation at all! However, given public market reliance on forward earnings regarding technology companies, internationalisation / predicted revenue growth from the US will be key to sustaining and growing that valuation in a post-IPO world.
Jack Ma, Alibaba’s Founder and Executive Chairman, is famous for stating, “eBay is a shark in the ocean, we are a crocodile in the Yangtze River. If we fight in the ocean we will lose, but if we fight in the river, we will win.” And by and large, Alibaba’s share of the Chinese market has not been affected by eBay’s EachNet offering (or that of any homegrown competitor). The problem is Alibaba is about to start swimming in the biggest ocean of them all, and will need to transform itself into a salt water crocodile if it is going to fight off competition at home and abroad.
Andrew Stott is a law adviser and partner with Olswang in Singapore.
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