A rival to Amazon and eBay emerges from the east
With an IPO that positioned Alibaba among the global technological elite, we take a closer look at this compelling company. Founded in the Hangzhou apartment of Jack Ma in 1999 the company has grown leaps and bounds to become a juggernaut in the e-commerce area.
Naming the company Alibaba came to his mind while he was searching for something that is both universally recognisable and could have a positive ring to it. Ma says that “Ali Baba opens Sesame for small to medium-sized companies.” So he started small, but with a clear vision from the get go – creating an effective online marketplace for quick business-to-business interaction. His model is different from those of Amazon and eBay – Alibaba doesn’t sell or transport any items to customers.
The profit for the company comes from strategically placed search ads, employing keywords similar to the way Google does, or by charging a commission on transactions, like eBay. The mainstay of the business are the two platforms: Taobao and Tmall – the first focusing on individual retailers and the second for big brands. Both of them have been dominating the Chinese market with Taobao especially appealing to the lower and middle classes as an unburdened way to do business.
The numbers have been adding up and they generated $248 billion in transactions from their main markets (more than Amazon and eBay combined) last year. Last week they saw their IPO raise around $21.8 billion, surpassing the US record of $17.9 billion raised by Visa in 2008. At an initial $68 per share they immediately surpassed Amazon’s valuation and at their current price of $89.94 we might soon see them challenging Facebook.
The price for the IPO was initially set between $60-$66, but strong investor interest pushed it further up and in the first moments it jumped to around $99. Many large players got in on the action, most of them early investors in the company getting preferential treatment with the ability to make larger orders. There was also a ripple effect for one of the large shareholders in Alibaba – Yahoo’s stock price took a tumble from $42 to $39 since the IPO. They had to sell a large chunk of their share in the Chinese company, which did make a handsome profit of $7 billion, but leaving them out of a company that is expected to grow rapidly. Competitors’ share prices will also be under scrutiny in the coming weeks, with investors taking a second look at Amazon and eBay during and after the IPO, to gauge exactly where the Chinese giant will make ground.
But this IPO isn’t important only because of the huge numbers being thrown around. It marks a shift in the global economy and firmly places the Chinese companies among the long-standing champions of Silicon Valley, both in terms of technology and market potential. The model of the company is different than The overarching task of the IPO is to announce Alibaba to the world and allow its expansion in the developed American and European markets.
The Alibaba stock is available for trading on the Trading 212 PRO Platform for Practice Accounts and will also be introduced for Real Accounts in a few days.