MONEY stocks

If This Is the Start of a Bear Market, Blame Alibaba

There's a possibility that the recent selloff morphs into a real downturn — and Alibaba's gaudy IPO may have marked the market's top.

It’s impossible to say if the recent plunge in the market is the start of a full-on downturn, or if it’s just a bout of short-term angst.

But if this does turn out to be an an official bear market, defined as a sustained drop of 20% or more, you can blame the Chinese e-commerce giant Alibaba and its celebrated initial public offering on Sept. 19.

That’s what famed bond fund manager Jeffrey Gundlach told CNBC earlier this week. Indeed, since Alibaba went public about a month ago, the broad market has lost almost all of its gains since the start of the year. And Alibaba itself has lost nearly 10% of its value.

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BABA data by YCharts

But it’s also what history says.

Bull markets are born at a time of fear, but as they mature, greed sets in. And at the top of the market, investors try to get their mitts on one last pot of gold.

That’s why many of history’s biggest downturns coincided with celebrated IPOs that exemplified the themes of the prior bull market.

You’ll recall, for instance, that in the summer of 2007, just as the financial crisis was getting going — and just months before the start of the 2007-2009 bear market — the private equity and financial services firm Blackstone Group went public … and proceeded to get hammered.

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And before that, in April 2000, AT&T Wireless went public just days after the market peaked on March 24, 2000.

In Alibaba’s case, the company exemplified the hot themes that had been driving the five-and-a-half-year-old bull market. That is, exposure to technology, mobile, social media, and China.

But all of that may prove to have been too much of a good thing.

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5 Quirky Things You Didn’t Know About Alibaba’s Jack Ma

Alibaba Executive Chairman Jack Ma hit paydirt Friday when his company launched the biggest IPO ever. But Ma isn't your average executive

TIME Companies

China’s Alibaba Finds Riches on Wall Street

Alibaba founder Jack Ma and CFO Maggie Wu react as the company's IPO begins trading at the NYSE in New York
Alibaba Group Holding Ltd founder Jack Ma and Chief Financial Officer Maggie Wu react as the company's initial public offering, under the ticker "BABA", begins trading at the New York Stock Exchange in New York, Sept. 19, 2014. Brendan McDermid—Reuters

A big payday for the company and Jack Ma

In one of the many tales of Arabian Nights, a poor woodcutter named Ali Baba discovers untold treasure in a thieves’ den. On Friday, Jack Ma and his similarly named company did the same thing on the New York Stock Exchange.

Alibaba, the Chinese Internet giant best known for its massive online marketplaces, saw its shares jump 38% in its first day of trading as a public company in the United States. The company raised $21.8 billion when it priced its IPO shares at $68 Thursday night, making it the largest public offering ever globally. But investor demand for a piece of the Chinese firm far outstripped expectations, pushing shares to rise to $92.70 when they finally began trading around noon Friday. Following a brief spike above $99 right when they hit the trading floor, shares mostly floated near the opening price during the day. Alibaba closed at $93.89, giving it a market capitalization of $230 billion. A company started by Ma and his friends in his Hengzhou apartment in 1999 is now more valuable than every U.S. tech company except Apple, Google and Microsoft.

“I feel excited and honored and I also feel very humbled,” Ma told Fox Business News in an interview from the trading floor. “It’s a great blessing from the world and we are so excited by the trust we got today.”

Alibaba has often been referred to as the “Amazon of China,” but it has more in common with eBay and Google. The company doesn’t sell products directly but instead acts as a kind of online bazaar where vendors small and large can hawk their wares to potential customers. It makes most if its cash by selling ads tied to keyword search results, like Google, and sometimes charges a commission on transactions, like eBay. It’s a simple business model that has proven wildly successful. The company estimates that it processes about 80% of all online sales in China and racked up $248 billion in retail transactions last year. Alibaba generated $2 billion in profit in the most recent quarter, more than eBay and Amazon combined.

So it’s no wonder that U.S. investors have been salivating over Alibaba for years. The company has become the face of the fast-growing tech scene in China, where 800 million residents are expected to be online by next year. Prior to the IPO, Wall Street used Yahoo, which has a large stake in Alibaba, as a proxy investment to benefit from these Chinese giant’s huge earnings. Now investors can tap into those profits directly. “You combine access to a rapidly growing middle income Chinese consumer to an unusual story in e-commerce,” says R.J. Hottovy, an equity analyst at Morningstar. “It adds up to one very compelling story.”

There are some caveats to Alibaba’s growth story. The company has an unusual governance structure that gives outsize power to Ma and the other founders. Ma has used this power in the past to make huge financial decisions unilaterally, such as when he sold off the mobile payments system Alipay without informing Yahoo. And the company is subject to the regulations of the Chinese government, which exerts strict control on business operations in the country. For now, U.S. investors seem comfortable with these risks.

More broadly, the blockbuster IPO marks another big success both for Chinese business and the tech sector as a whole. Eleven other Chinese companies have gone public in the U.S. this year, including Alibaba competitor JD.com. They’ve gained 40% on average from their IPO price, according to Renaissance Capital, a firm that manages IPO and ETF investment funds. Meanwhile, a cadre of startups waiting in the wings are expected to flood the IPO market before the year is up. Kathleen Smith, chairman of Renaissance Capital, says about 100 additional companies will raise $20 billion total in IPOs through the rest of the year. She projects that the total haul for the year will be $80 billion raised in public offerings, the most since the tech bubble peaked in 2000. Twenty-five percent of those funds go to Alibaba alone.

Now flush with cash, Jack Ma says his company will begin focusing its attention on foreign shores. The company launched an Etsy-like site for boutique retailers called 11 Main in the U.S. over the summer, for example. But it will be harder for Alibaba to take on giants like Amazon and eBay on their own turf. “You’re going to be going against people who have built networks in other regions,” Hottovy says. “It’s going to be difficult to become much more than a niche player in North America.”

But with less than 300 million active users in China, Alibaba still has plenty of room left to run in its own country. Whether it will live up all its hype as a publicly traded company remains to be seen. For now, though, Alibaba is basking in riches.

TIME Companies

Jack Ma, Alibaba’s founder, in the IPO Spotlight

China-Based Internet Company Alibaba Debuts On New York Stock Exchange
Executive Chairman of Alibaba Group Jack Ma poses for a photo outside the New York Stock Exchange prior to the company's initial price offering (IPO) on September 19, 2014 in New York City. Andrew Burton—Getty Images

He’s still Alibaba’s visionary-in-chief

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This post is in partnership with Fortune, which offers the latest business and finance news. Read the article below originally published at Fortune.com.

By Verne Kopytoff

Jack Ma, co-founder of Chinese online retailer Alibaba Group, likes to tell anyone listening that his company faced slim odds as a startup.

“We are a very lucky company,” he recalled during a talk at Stanford University in 2011. “There was no chance that we would survive. I don’t have any background, rich father, or strong uncles.”

Today, Alibaba is an e-commerce colossus that is roughly the equivalent of eBay, PayPal, and Amazon.com combined. On Tuesday, it filed for an initial public offering that could be the largest in U.S. history. Ma, a former school teacher and English translator, stepped down as Alibaba’s chief executive last year to, as he put it, leave room for younger talent that is more in tune with today’s Internet. However, as executive chairman, he still casts a long shadow over the company as its strategist and philosopher-in-chief.

“He’s clearly a pioneer and a visionary,” said Victor Koo, chief executive of Youku, a Chinese online television site in which Alibaba recently led a $1.2 billion investment.

The two men first met 15 years ago when Koo tried to recruit Ma for a job just before Alibaba’s birth. At the time, Ma would only reveal the name of his brainchild but not its business plan. “I can’t tell you what it is – it’s a secret,” Koo recalled Ma saying during their talk. They crossed paths yet again during the recent negotiations for Alibaba’s stake in Youku. As usual, Ma was quite involved during meetings despite officially withdrawing from Alibaba’s day-to-day management and leaving the CEO job to his lieutenant, Jonathan Lu.

For the rest of the story, please go to Fortune.com.

TIME Companies

Alibaba Founder Jack Ma Loves Forrest Gump

Alibaba Group Holding Ltd. Executives Attend IPO Ceremony At The NYSE
Billionaire Jack Ma, chairman of Alibaba Group Holding Ltd., smiles while touring the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Friday, Sept. 19, 2014. Bloomberg—Bloomberg via Getty Images

Ma made the rounds before his company set off on what's set to be the biggest IPO in U.S. history

When Alibaba founder Jack Ma is feeling down, he looks to Forrest Gump for inspiration. The Chinese billionaire, whose online retail giant is going public Friday in what’s primed to be the biggest IPO in U.S. history, told CNBC that he’s watched the Tom Hanks movie at least 10 times.

“Every time I’m frustrated, I watch the movie,” he said from the New York Stock Exchange floor, where Alibaba is set to begin trading Friday morning, potentially at up to $90 a share. “I watched the movie again before I came here. It’s telling me, ‘no matter whatever changes, you are you.’”

Ma started Alibaba out of his Hengzhou apartment in 1999. Today, the company has its hands in a sprawling assortment of online retail marketplaces, cloud computing services, messaging apps, and video websites, and it generates $2 billion in profit per quarter. Ma said that the central focus of his company remains helping small businesses and that the company will use the $21.8 billion it’s raising in its IPO to further this goal.

“We want to make sure our ecosystem helps the small guys,” Ma told Bloomberg TV. “Anything that can help small business grow, we will consider.”

The Alibaba chairman also discussed his controversial decision to spin off Alipay, a fast-growing mobile payments platform similar to PayPal, from Alibaba’s main business in 2011. The move was performed without consulting major shareholders, such as Yahoo, which voiced anger over the decision. In SEC filings, Alibaba has argued the move was necessary to comply with Chinese government regulations, but Ma today alluded to there being more to the story. “The decision for Alipay was one of the most painful decisions I have ever made in my past 15-year business career, but this is the decision I feel most proud of,” he told CNBC.

He also discussed wrangling with the Chinese government, which imposes strict regulations on domestic businesses.

“Being a global company dealing with any government is difficult,” Ma said. “There’s an opportunity for communication. That’s how we survived the past 15 years. We always try to say, ‘We’re in love with the government, but we don’t marry them.'”

TIME technology

Alibaba Founder Jack Ma’s Other Big Job

Alibaba Chairman Jack Ma
Jack Ma, chairman of Alibaba Group Holding Ltd., in Hong Kong on Sept. 15, 2014. Brent Lewin — Bloomberg / Getty Images

The Alibaba IPO will set a record, but the company's founder has focused on China's environmental problems

Friday’s Alibaba initial public offering will officially be the largest in U.S. history: the Chinese e-commerce giant is raising $21.8 billion with its stock debut.

But Alibaba’s billionaire co-founder Jack Ma — though a major presence on the IPO circuit and a major beneficiary of it, standing to gain hundreds of millions of dollars from the stock — isn’t just focusing on his company and its earnings. In fact, last May he stepped down from his position as CEO. (He’s still the company’s chairman.) He is, as Victor Luckerson spelled out earlier this year, not your typical tech honcho. Rather, he’s a former English teacher who doesn’t code and loves the soundtrack to The Lion King.

He’s also one of China’s most important environmentalists, as Bryan Walsh explained in a 2013 TIME profile of Ma:

But as entrepreneurs get older–Ma, 48, says he is “old for the Internet”–they start to slow down, look around. What Ma saw was a country paying an environmental price for rapid development. His father-in-law developed liver cancer, a disease Ma–and some scientists–connects to the terrible water pollution that is now common in much of China. Ma saw the skies in Beijing and other Chinese cities grow foul with pollution. On a trip to the countryside near his hometown of Hangzhou, he saw that a lake in which he had nearly drowned while swimming at age 13 now barely came up to his ankles. Farmers told him that they were so afraid of the poisoned soil, they wouldn’t eat some of their own produce. “I knew something was very wrong,” Ma told TIME during a recent interview in Santa Monica, Calif. “This is serious–and we have to make people pay attention to it.”

Now Ma is making it his mission to get China to pay attention to its environmental mess. On May 10, he stepped down as CEO of Alibaba, though he’ll retain a strategic role with the company. The next day he took a new job, as chairman of the China board for the Nature Conservancy (TNC), one of the richest environmental groups in the world. TNC has generally been U.S.-focused, but the sheer size and influence of China ensure that global environmental and climate issues will increasingly be decided there. If China is going to change for the greener, it will need local champions. Ma has volunteered.

Read Bryan Walsh’s full 2013 profile of Jack Ma here: From Gold to Green

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Alibaba Raises $22 Billion in Record IPO

The Chinese e-commerce giant just raised a record amount of money on the New York Stock Exchange. Should you buy in?

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4 Things Alibaba’s IPO Tells Us About a Changing World Economy

An employee is seen behind a glass wall with the logo of Alibaba at the company's headquarters on the outskirts of Hangzhou, Zhejiang province
An employee is seen behind a glass wall at Alibaba's headquarters on the outskirts of Hangzhou, China, on April 23, 2014 Chance Chan—Reuters

The Chinese e-commerce giant launches one of the largest stock-market debuts in history — and points the way to our economic future

The story of Alibaba has already become legend. Fifteen years ago, Jack Ma, a former English teacher, and his co-founders set up their Internet company in an apartment in the Chinese city of Hangzhou, not far from Shanghai. Today, Alibaba’s online shopping sites in China — mainly Taobao and Tmall — handle twice as much merchandise as Amazon. The company’s initial public offering on the New York Stock Exchange will bring in a haul of some $21.8 billion — bigger than Facebook’s — and values Alibaba at $168 billion — four times more than Yahoo.

When Alibaba’s shares start trading Friday, history will be made. And not just in the world of tech or stock markets. Alibaba’s IPO represents some much bigger trends shaping the world economy. Here are four things the IPO tells us about our economic future:

1. More and more of the world’s most prominent companies will be from the developing world.
We still have this image of China as one big factory floor where millions of poor people slog away on assembly lines churning out cut-rate toys, clothes and electronics. Sure, there are still factories like that, but ever more that low-cost manufacturing center guise is becoming the Old China. The world’s most populous nation is developing so rapidly that it is already producing companies that are major players in all sorts of industries. Lenovo is now the largest PC maker in the world, while Huawei is challenging the best of the West in telecom equipment.

Alibaba takes this trend to an entirely new level — out of manufacturing and into the realm of technology and services. Ma and his executive team have created a company that can be named in the same sentence as tech titans like Facebook and eBay. And Alibaba is not unique. Shenzhen-based Tencent, which operates the popular WeChat messaging service, is yet another Chinese Internet firm with global potential. The fact is the most powerful companies in the U.S. and Europe will increasingly have to contend with Chinese companies exploding onto the world stage. And China may be in the lead among the world’s emerging economies in this trend, but it is not alone. India has produced some IT firms that can compete with the world’s best, such as TCS and Infosys.

2. Emerging markets are creating blue chips.
Ever since the idea of investing in the developing world became popular in the early 1990s, there has been a line drawn between these “emerging markets” and the more established bourses of the U.S., Europe and Japan. Emerging markets were supposed to be riskier, where only the bolder of investors would dare tread, compared with the supposedly more trustworthy and less volatile options in New York City and London. The Alibaba IPO shows how that great wall is breaking down. That a company based in a town like Hangzhou can raise more money in its IPO than one based in Menlo Park, Calif., (Facebook) shows that investors are starting to treat firms from the developing world on par with those in the developed world. Of course, the stigma staining companies from China and elsewhere won’t go away overnight — Chinese companies that have listed in New York City have had a sad history of accounting disasters. But going forward, your stock portfolio is going to hold more companies with addresses in Shanghai, Mumbai, Istanbul and São Paulo.

3. Consumers in the developing world will rule the world.
The story of the global economy since the end of World War II has gone something like this: capitalizing on better transport and communications technology, world production shifted en masse to poor countries from rich countries like the U.S. Factories replaced rice paddies in South Korea, China, Indonesia and elsewhere, which then shipped the mobile phones, computers and sneakers manufactured there to store shelves in the U.S. and Europe. The billions of people in these poorer nations couldn’t afford much of the stuff they made.

Now the global economy is “rebalancing.” Consumption in the U.S. and Europe is constrained by weaker job prospects and stagnant wages, while disposable income in China and other developing nations is increasing in leaps and bounds. That is making consumers in these countries the new engine of global economic growth. If the U.S. consumer dominated the 20th century, the Chinese and Indian consumer will control the 21st.

Alibaba is a prime example of the power of these new, emerging consumers. In 2013, Chinese shoppers bought $248 billion of stuff on Alibaba’s retailing websites. Compare that to an estimated $110 billion worth of good purchased on Amazon — globally. Increasingly, it will be companies that sell to households in Beijing, New Delhi and Jakarta that will dominate global consumer industries.

4. Your next job may be at a Chinese or Indian company.
Jack Ma has said that he plans to use some of his multibillion haul from the IPO to expand Alibaba’s presence in the U.S. and Europe. This, too, is part of a trend. Companies from developing markets are becoming more important investors around the world. According to the American Enterprise Institute, Chinese companies have invested more than $500 billion around the world since 2005 — with the U.S. the top destination.

And as companies from China, India and other emerging economies become ever bigger and bigger global investors, they will become bigger and bigger global employers. Firms like Lenovo, Huawei, carmakers Geely and Tata, appliance maker Haier and a host of others already employ thousands between them around the world. Going forward, you might just find your best job opportunity is at a company like Alibaba, based in China, rather than a firm in New York City, Paris or Frankfurt.

TIME Companies

Everything You Need to Know About Alibaba and its Mega-IPO

Chinese online retail giant Alibaba CEO Jack Ma (center) waves as he arrives at the New York Stock Exchange in New York City on Sept. 19, 2014.
Chinese online retail giant Alibaba's executive chairman and founder Jack Ma (center) waves as he arrives at the New York Stock Exchange in New York City on Sept. 19, 2014. Jewel Samad—AFP/Getty Images

What you need to know about the Chinese Internet firm's massive U.S. IPO

The Wall Street hype machine is in full swing for the Chinese online retail giant Alibaba’s initial public offering. The company, which operates a series of vast online marketplaces in China, raised $21.8 billion when it priced its IPO at $68 per share Thursday night, making it the largest offering in U.S. history. But that was just the beginning of the investor craze—shares began trading just before noon on the New York Stock Exchange Friday at $92.70, a 36% jump from the IPO price. That opening price puts Alibaba’s overall valuation at almost $230 billion, more than Amazon and eBay’s valuations combined.

Alibaba has already been called so many things–the Amazon of China, the biggest IPO of all time, the harbinger of a new Internet era—that it can be hard to pin down exactly what Alibaba does and how it makes money. TIME has assembled this helpful primer for the uninitiated to understand the hottest public offering of the year. Here’s what you need to know about Alibaba:

What is Alibaba?

Alibaba Group is a Chinese Internet corporation involved in a variety of Web businesses. Its most important elements are its online retail sites: Taobao Marketplace, a large eBay-like commerce site; Tmall, an online marketplace for name-brand retailers like Apple; and Juhuasuan, a daily deals site similar to Groupon.

The company is also affiliated with a PayPal-like mobile payments service called AliPay, and it has investments in online video, mobile messaging and cloud computing, among other businesses.

So is Alibaba the “Amazon of China” or not?

Not exactly. Unlike Amazon, Alibaba itself does not sell and ship items to customers. Instead, it acts as a kind of online bazaar where merchants as small as local vendors and as large as Nike can hawk their wares. Alibaba makes money mainly by convincing these sellers to place search ads on its website to reach more potential customers through keywords (like Google) or by charging a commission on some transactions (like eBay).

The company also makes money by selling premium memberships, cloud computing services and access to analytics data — so there are some comparisons to be made to Amazon.

Why is Wall Street so obsessed with Alibaba?

Two big reasons.

First, Alibaba processes a lot of sales and makes a ton of money doing it. Alibaba generated $248 billion in transactions on its three biggest marketplaces last year. By comparison, eBay generated $83 billion.

More staggering is the profit the Chinese giant reaps from these sales: Alibaba made about $2 billion in profit in the most recent quarter, tripling its earnings from a year ago. EBay, on the other hand, made $676 million and Amazon lost $126 million. Alibaba keeps costs low by hiring fewer employees than its closest American competitors and, unlike Amazon, avoiding the costly expense of operating fulfillment centers to ship products to customers.

Investors are also excited because Alibaba offers the most direct way to own a piece of China’s booming tech scene. The Internet population in the country is expected to reach 800 million by next year, according to government estimates, making it the largest market of online users by far. Tencent, another Chinese tech giant, offers many services that compete with Alibaba’s, but it’s traded on Hong Kong’s stock exchange. With Alibaba on the New York Stock Exchange, it will be easier for U.S. residents to invest in the company.

Who’s the mastermind behind Alibaba?

That would be Jack Ma, a former English teacher who founded Alibaba out of his Hangzhou apartment in 1999. Ma is not your average tech executive. He didn’t start using the Internet until 1995 and still doesn’t know how to code. He’s an eccentric character who once donned a blonde wig and black lipstick to sing “Can You Feel the Love Tonight?” at a 10th anniversary celebration for his company.

But he’s also a ruthless businessman who effectively ran eBay out of China in the early 2000s and maintains significant influence over Alibaba’s activities even though he’s no longer the CEO.

Who are the other key players at the company?

Yahoo, which owns about one-fifth of Alibaba, stands to make a windfall when it sells more than 120 million of its shares during the IPO, reaping as much as $8.3 billion before taxes. Yahoo will still have a 16.3% stake in Alibaba after the IPO and its stock price will likely continue to be buoyed by Alibaba’s rapid growth. However, Softbank, the Japanese tech firm that owns Sprint, is Alibaba’s biggest shareholder. Softbank will have a 32.4% stake following the IPO.

Despite their large stakes, these companies have relatively little say in the operational activities of Alibaba. They have ceded much of their shareholder influence to a group of executives called the Alibaba Partnership.

What is the Alibaba Partnership?

It’s a group of longtime of Alibaba employees, including Ma and his right-hand man Joe Tsai, who exert incredible control over the company’s activities. Alibaba also has a board of directors, but the Alibaba partnership reserves the right to nominate the majority of the board members, meaning the Partnership essentially controls the activities of the company by proxy without the need for input from other shareholders.

Should investors be concerned about this structure?

Well, it is highly unusual. The Partnership structure was rejected by the Hong Kong Stock Exchange, which is how Alibaba ended up on Wall Street in the first place. Though members of the Partnership must have a “meaningful” equity stake in Alibaba, according to the company prospectus, it’s not spelled out how large the stake must be. As Harvard Law School professor Lucian Bebchuk points out, partners could choose to later pare down their stakes in Alibaba and attempt to influence the company in ways that are not beneficial to other shareholders (remember, Yahoo and Softbank have basically handed their votes to the Partnership).

The ability of Alibaba’s executives to act unilaterally has already caused concerns before. Jack Ma spun off the fast-growing payments platform Alipay to another company he owns in 2011, which angered Yahoo.

Forget the risks! How do I get in on this IPO?

You don’t, unless you’re really rich. The banks underwriting Alibaba’s IPO will sell shares to mutual funds, hedge funds, and large-scale individual investors. The Average Joe’s first chance to get a piece of the company will likely be Friday morning, once the stock is publicly trading. But those shares could come at a significantly higher price than the IPO price range of $66 to $68. Twitter, for instance, started trading above $45 back in November even though its IPO price was just $26, due to extremely high demand for its stock. Unless you’re well-connected, it would be almost impossible to game the IPO to turn a quick buck. You should either plan to buy in as a long-term investor after carefully studying Alibaba’s prospectus or just relax and watch the chaos unfold without worrying about making or losing money.

What’s next for Alibaba?

The company’s breakneck growth in China shows no signs of abating, and Alibaba also has plans to compete on U.S. shores. Over the summer, the company launched 11 Main, an Etsy-like platform that connects shoppers with boutiques and other small vendors. And during Alibaba’s road show pitching the IPO to potential investors, Ma made his most direct statements yet about his already-massive company’s global ambitions.

“After we go public in the U.S., we will expand strongly in Europe and America,” Ma said. “Because after all we’re not a company from China, we are an Internet company that happens to be in China.”

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