Alibaba Group Holding Ltd., China’s massive B2B, online retail and e-payment company, will eventually go public, as early as this year. How much cash the company would raise in an IPO is the subject of considerable speculation, with analysts pushing their price estimates up to $100 billion.
But these are estimates provided by Wall Street with players who, if chosen as underwriters, could profit from selling over-valued stock to unwitting investors.
If this sounds familiar, it is.
It’s been almost a year to the day when Facebook Inc (Nasdaq:FB) went public in a problem-plagued offering that left shareholders paying nearly $40 a share on the first day of trading on May 18, 2012, a price much higher than the stock has touched since. Facebook is trading at around $28 and has lost one-fourth of its value since the company went public.
In other words, Facebook’s estimated value of $104 billion was too high, and Alibaba executives are reportedly seeking a more conservative pre-IPO valuation to avoid the fallout from the Facebook IPO, including shareholder lawsuits and a tarnished reputation.
According to a Bloomberg analysis of eight investment banks and research firms, the more conservative valuation would be $62.5 billion, or 84 times the company’s net income from last year. That’s compared to the 107 times Facebook’s annual net income in 2011 that was used to get to the $104 billion estimate for its IPO.
The Hangzhou-based company founded by Jack Ma in 1999 has said it would go public by 2016, but most analysts expect the listing to come well before then.
When China’s version of Amazon.com floats its IPO, it will be viewed as a highly attractive buy considering its position in China’s rapidly expanding consumer market. Last week, Alibaba reportedly obtained loans worth $8 billion from nine major banks. The previous week, the company paid $568 million for an 18 percent piece of Weibo, a subsidiary of the online media company Sina (Nasdaq:SINA) and China’s most-popular microblogging site.
Alibaba officials haven't said where the company might list, but with its size and clout it could list anywhere.
“They can be a success in the U.S. or Hong Kong,” a Hong Kong-based banker told IFR Asia. “The biggest difference between the two markets is liquidity.”