Investors give Alibaba a huge vote of confidence
No company projects China's growth story quite like Alibaba. When investors finally got a chance to buy into it through the e-commerce giant's Wall Street debut on Friday, its shares closed at US$93.89 a share, up 38 per cent on the offer price of US$68.
No company projects China's growth story quite like Alibaba. When investors finally got a chance to buy into it through the e-commerce giant's Wall Street debut on Friday, its shares closed at US$93.89 a share, up 38 per cent on the offer price of US$68, after opening at US$92.70. To meet demand, as more than 270 million shares changed hands, Alibaba sold an additional 48 million, making the offer the world's biggest IPO.
The IPO may open the door to global expansion. But it is Alibaba's dominance in China, and its unrivalled position to tap into a rising consumer class, that inspires confidence.
Investors love a good story. What excites them is the stellar potential of what is already the world's largest internet commerce company. China's 300 million online shoppers still account for less than half the country's 618 million internet users. Half a billion mainlanders are yet to get internet access. And competition from high street retailers is not comparable with Western markets, or for that matter Hong Kong.
So the question is not whether Alibaba will have many more users, but how much they will spend, which is currently far less per person than in the US. Nonetheless, Alibaba has extraordinary profit margins of more than 40 per cent, thanks to a relatively low capital investment ratio and a marketing model that simply connects buyers and sellers and leaves direct selling, inventory and distribution to others. Throw in China's efforts to direct its export-driven economy towards more consumption, and an untapped market in rural China, and the potential is unlimited. Only China's slowing growth may sow seeds of doubt in investors' minds.
The record IPO might have listed in Hong Kong had local regulators not rejected a corporate structure under which Alibaba's management controls appointments to the board of directors. Investors who bought the American depositary shares will have a stake in a Cayman Islands-registered company in control of Chinese companies that operate Alibaba's business. These have contractual relationships with entities owned by Alibaba founder Jack Ma Yun and his colleague Simon Xie that hold the necessary licences.
Despite misgivings over the ownership structure, investors who have given Alibaba such a rich valuation imply faith in Ma and his associates to be seen to run it like a proper publicly owned company and set an example of corporate openness.
