Alibaba the huge Chinese Internet conglomerate is going public in a world-wide offering led out of the United States. It is expected to occur in June or July this year. Alibaba is really a technology company that serves retail customers and controls 80% of the Chinese e-commerce market.
Alibaba will probably be listed on the New York Stock Exchange. Reflecting its dominance in world’s largest market, China, the valuation will likely top other retailers and most other enterprises. Founded in 1999 in the garage of Jack Ma, a former English school teacher, management’s ambition is to build on its spectacular success in China to become the global leader in e-commerce. Here are some facts that highlight the company’s extraordinary position and potential to grow:
- Sales for 2014 are estimated at $420 Billion. In 2012 sales were $170 Billion. This dwarfs Amazon, its closest competitor, with reported sales of $74.4 Billion for fiscal 2013 while EBay reported sales for fiscal 2013 of $16 Billion, less than one-tenth Alibaba’s 2012 sales.
- The customer base is gigantic. There are 1.4 Billion people in China. In the United States there are 327 Million. (For the record, the United States is the third largest country; India is second with a population of 1.2 Billion.
- Alibaba claims to have 300 Million customers. They employ over 25,000 workers to service the clientele.
- China’s “Singles Day” promotion is annually on November 11th. This is the biggest on-line shopping day in China. In 2013 Alibaba recorded sales of $5.6 Billion on that single day. By comparison, in the United States, 2013 on-line sales on Cyber Monday were about $1.7 Billion
- There are several major divisions including “Taobao” which allows private persons and small businesses to sell merchandise to customers. Unlike EBay which has sellers pay a commission to EBay, Taobao sellers have to pay for the advertised promotion.
- ”Tmall.com” is similar to Amazon where companies can offer merchandise. For example Nike and Gap participate and pay Alibaba a commission for every transaction. Customers can pay using “Alipay” which is comparable to EBay’s PayPal.
- Currently Alibaba is working on establishing financial services and banking relationships. Soon customers will be able to invest, as well as buy insurance with the Alibaba credit card.
- It is expected that Alibaba will go public in June or July 2104. Currently Yahoo owns 24% of Alibaba shares, Softbank 37%, Jack Ma, the founder and Joe Tsai, the Taiwan born executive vice president, own about 10% together. There are about 17 smaller investors and officials that hold the rest, about 29%, of the shares.
- Last month management had discussions with bankers from Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan and Morgan Stanley—each vying for a leadership role in the going public process. No announcement has yet been made as to who was selected as the lead underwriter.
- The value of the enterprise is peg at about $143 Billion based on a 12 analyst consensus valuation. That implies the offering will be around $17 Billion. That is about $1 Billion higher than the Facebook offering.
Alibaba will compete most directly with on-line retailers like Amazon, EBay or Zalando in Europe. Rakuten in Japan, Kobo in India, Wuaki in Spain and other major on-line providers with strong presence in their home and adjacent markets. Every major brick and mortar department store and specialty store is also operating sophisticated shopping sites offering value and fashion. It is time for a wake-up call to many on-line retailers that free delivery is not the only incentive customers demand when they shop on-line. There must be a service orientation that will anchor customers to a shopping site (Zappos does this well.) It may even be necessary to develop loyalty cards with incentives to encourage repeat on-line shopping. No doubt, in my opinion, the often myopic U.S. retailers should be paying attention to Alibaba’s IPO as it may be a harbinger of an even more competitive environment.
