TIME Earnings

Yahoo Will Get to Hold Onto More of Alibaba

Marissa Mayer
Yahoo president and CEO Marissa Mayer speaks during a keynote address at the International Consumer Electronics Show in Las Vegas on Jan. 7, 2014. Julie Jacobson—AP

Yahoo posted disappointing second quarter earnings Tuesday, but that could be offset by news that it will keep millions more shares of Chinese e-commerce giant Alibaba when that company goes public in the U.S., giving Yahoo a much-needed bright spot

Updated July 15, 6:22 p.m. ET

Yahoo will get to hold on to more of its most valuable asset, the high-flying Chinese e-commerce company Alibaba.

Alibaba, which is prepping for a huge public offering in the U.S., has agreed to let Yahoo keep 68 million more shares than originally planned when the company goes public, Yahoo disclosed in its quarterly earnings report Tuesday.

Yahoo was previously required to sell 208 million shares, or about 40 percent, of its current stake in Alibaba during its IPO. Now the Internet giant will only have to sell 140 million shares. Alibaba’s IPO could give the Chinese company a valuation of as much as $150 billion, according to some estimates, making it a valuable asset for Yahoo.

Yahoo currently has about a 24 percent stake in Alibaba. “We are very strong believers in Alibaba over time,” Yahoo Chief Financial Officer Ken Goldman said in a conference call with investors. The company also announced that it would return at least half of the after-tax proceeds it makes from Alibaba’s IPO directly to shareholders.

Not everyone is convinced that Yahoo’s dependence on Alibaba is a good thing. “They’re suggesting that the capital is much better suited in an investment in Alibaba Group than what they can actually do with the cash,” says Rick Summer, an equity analyst at Morningstar. “It’s an admission that Yahoo doesn’t have enough opportunities to invest in and they don’t have confidence to return the cash to shareholders.”

Beyond Alibaba, Yahoo’s earnings report was mostly disappointing. The company posted revenue excluding traffic acquisition costs of $1.04 billion in the second quarter, a 3% drop from the same period last year and well below analysts’ estimates. Earnings per share were 37 cents, below analyst estimates of 38 cents. Operating income plunged from $137 million in 2013 to $38 million in 2014. Revenue from display advertising excluding traffic acquisition cost was $394 million, off seven percent from the same period last year. Search revenue, though, was a bright spot, increasing from $403 million last year to $428 million this year.

CEO Marissa Mayer herself acknowledged that the results were subpar. “Our top priority is revenue growth and by that measure, we are not satisfied with our Q2 results,” Mayer said in a statement. “While several areas showed strength, their growth was offset by declines.”

During the conference call, Mayer touted user growth as proof that Yahoo still has considerable room to grow its revenue. The company’s sites now have 450 million monthly users on mobile, and its video site, Yahoo Screen, increased views 67% year-over-year. Upcoming content initiatives aimed at further goosing growth include a series of daily concert broadcasts for a year and the exclusive airing of a sixth season of the cancelled NBC sitcom Community.

Yahoo shares sunk a bit more than two percent following the company’s conference call with investors.

MONEY online shopping

Should You Ditch Amazon and eBay for Alibaba’s 11 Main?

Abandoned shopping cart
Michael Wriston—Getty Images/Flickr

The June 11 launch of 11 Main, Chinese e-commerce giant Alibaba’s first foray into the U.S. retail market, set off plenty of speculation about the company’s plans to take on Amazon and eBay. But for online bargain hunters, the real question posed by 11 Main isn’t which corporation will come out on top. It’s, “Should I shop there?”

To find out, I requested an invite (the site is currently invite-only) and pulled out my credit card.

Visually, 11 Main has more in common with crafty marketplace Etsy and flash sale sites like Gilt than the no-nonsense, utilitarian look of Amazon. Rather than sell its own items, the site is a platform for smaller sellers to hawk their wares. 11 Main currently hosts over 1,000 of these sellers, and divvies up their products into categories like fashion, home, tech, toys and jewelry. You can also browse each provider’s shop, and “favorite” items, saving them to a separate page.

Since much as been made of the 11 Main vs. Amazon and eBay showdown, I decided to compare the three by shopping for identical product on each site. I selected five different items: a jump rope, iPhone cover, bottle of pet shampoo, set of children’s socks, and pair of sunglasses (eclectic enough for you?). In each case, the item is sold not by the big site itself, but by a small seller using 11 Main, Amazon, or eBay as a storefront.

Here’s what happened:

On the pure price of the item, Amazon and eBay tied with two winners apiece, leaving 11 Main to bring up the rear.

What really matters to shoppers, though, is the total cost required to get the object of your desire to your doorstep. Now, if you’re Joe Shopper, who just wants to log on and pick up one item, you should go directly to eBay, which won (or tied) on price plus shipping, four times out of five.

But who actually pays shipping on Amazon? If you shell out the $99 a year to be a Prime member, or are willing to stock your cart with $35-worth of must-haves, you can drop those nasty shipping charges on many items. Of our five buys, four qualified for Amazon’s free shipping (the fifth was mailed directly by the seller, and was therefore ineligible). Once free shipping was factored in, the power dynamic flip-flopped, and Amazon came out on top.

Now for returns. When it comes to shipping back a product from 11 Main, you and the seller are on your own: you communicate via email to hash out the details. You also deal with the seller on eBay, though you message back and forth using the site, rather than directly. Amazon provides the most mediation; the site even sent me a printable mailing label, despite the fact that I was shipping the item directly back to the seller. (The actual return policies for each item vary by seller, no matter which site you use.)

The takeaway:

At least in its current form, 11 Main is no match for America’s current online retail kingpins. Can you take advantage of Amazon’s free shipping options? If so, make the Seattle-based retailer your first click.

Stray notes on 11 Main

  • When I logged into 11 Main after making my first purchase, the site had no record of my order.
  • If the items you put in your cart are from different sellers, they are treated as entirely separate purchases, and must be bought individually. Never have I been so happy that Autofill exists.
  • 11 Main has no product reviews or seller ratings. It’s often possible to find them elsewhere online, but adds to your shopping time.





TIME Retail

This Is Alibaba’s Plan to Take on Amazon and eBay on Their Home Turf

Chinese retail giant Alibaba is making its boldest move yet to directly compete against sites like Amazon and eBay on their home soil. The company launched a new boutique online marketplace in the U.S. Wednesday that it hopes will gain a foothold in the country’s $262 billion online retail sector.

The new site, called 11 Main, allows merchants to sell boutique products in categories such as fashion, jewelry and crafts. For now, it’s more of a Etsy competitor than an Amazon foe.

“The 11 Main experience was really created and inspired by that Main Street shopping experience,” says Mike Effle, president and general manager of the business. “It’s really positioned as a hand-selected collection of speciality shops and boutiques.”

The site is Alibaba’s first substantial attempt to break into the U.S. retail market. In China, Alibaba is an unprecedented tech giant that generated $248 billion in retail transactions in 2013, dwarfing global sales for both Amazon and eBay. 11 Main takes some cues from its parent company’s successful Chinese enterprise. Like Taobao, the largest of of Alibaba’s retail sites, 11 Main leaves the shipping and logistics fees to the merchants, acting only as a massive storefront to let customers browse thousands of items. 11 Main charges a 3.5 percent commission on most products sold. The site was formed through the 2010 acquisition of two e-commerce U.S. startups, Auctiva and Vendio, and will operate independently of Alibaba, Effle says.

11 Main, which is currently in an invite-only beta, has a long road ahead to create a significant dent in the overcrowded American retail marketplace. But Alibaba’s backing gives the new site a significant advantage, according to Forrester analyst Kelland Willis.

“A successful eCommerce practice requires seasoned talent – which Alibaba is hiring in the form of acquiring companies,” Willis said in an email. “Acquiring mass traffic will likely be their biggest issue to date, but with a long tail of products it may be easier than we expect.”

Ahead if its upcoming mega-IPO in the U.S., Alibaba has made significant investments in plenty of other American businesses. The company poured $215 million into a messaging app called Tango earlier this year, and led a $250 million funding round for ridesharing app Lyft in April. The company also has a 40 percent stake in Shoprunner, an online storefront with a free shipping program that competes directly with Amazon Prime. Flush with cash—the company made $3.5 billion in 2013 alone—Alibaba’s ambitions are rapidly expanding beyond its homeland.

MONEY chinese stocks

What JD.com's IPO Says About Alibaba

The Amazon of China showed investors' appetite for Chinese e-commerce companies remains in tact. That's good news for Alibaba's pending IPO.

A Chinese e-commerce giant just went public, though it wasn’t the one you were probably anticipating. Still, it’s worth paying attention to.

JD.com JD.COM INC ADS EA REPR 2 COM 'A' SHS JD 2.1378% , known as the Amazon.com of China, debuted on the NASDAQ Thursday and performed slightly better than expected (the shares were up around 6% in their first two trading days). The news gives renewed hope for those waiting with bated breath for the initial public offering for Alibaba, expected later in the summer.

JD.com is a pretty big deal — the company is valued at more than $25 billion. But Alibaba will be much, much bigger. Some analysts believe the Street will value the company at around $170 billion, making it larger in market cap than Amazon AMAZON.COM INC. AMZN 2.3382% or Facebook FACEBOOK INC. FB 1.2531% . Brendan Ahern, managing director of KraneShares, said this would make Alibaba instantly “bigger than 95% of the Standard & Poor’s 500 index,” he noted. In fact, he added, “Alibaba will be the most valuable internet company after Google GOOGLE INC. GOOG -0.4033% , which has a market cap of about $347 billion.”

Despite JD.com’s smaller scale, there are plenty of things you can glean from the company’s debut to help you set your expectations for Alibaba. Here are three:

1) Both Chinese stocks and U.S. tech shares have been slumping, but investors still can’t resist China+Internet.
As the chart below shows, investors have lost their appetite for Chinese stocks in general this year — as seen below by the drop in the Markets Vector China ETF; MARKET VECTORS ETF CHINAAMC A-SHS ETF PEK -0.3853% . That’s owing to fears over the health of the slowing Chinese economy, which now faces threats to its financial and real estate sectors. Meanwhile, a drop in risk-taking among investors has also pushed the value of tech shares lower in recent months. Take a look at the losses suffered by PowerShares NASDAQ Internet ETF; POWERSHARES ETF - NASDAQ INTERNET PORTFOLIO PNQI 0.3278% .

PEK Chart

PEK data by YCharts

However, the bulls are giving Chinese Internet companies — especially Chinese e-commerce firms — a bit more slack, as evidenced by the performance of KraneShares CSI China Internet ETF KRANESHARES TR CSI CHINA INTERNET ETF KWEB 0.6248% :

KWEB Chart

KWEB data by YCharts

2) Even though the IPO market is sluggish, there’s still demand for Chinese IPOs.
In recent months, several IPOs priced below expectations, causing some companies to shelve their plans to go public until the mood of the market improved. And yes, Weibo, the so-called Twitter of China, was one of those disappointing debuts.

However, the JD.com IPO shows that this isn’t necessarily a widespread problem. So does the eye-popping performance of Chinese e-commerce debuts lately. Look at the stunning run for Vipshop Holdings VIPSHOP HLDGS LTD SPON ADR EA REPR 2 ORD SHS VIPS -0.5275% , a leading Chinese flash sales site, since it went public in March 2012:

VIPS Chart

VIPS data by YCharts

3) For Chinese e-commerce companies, it’s still all about potential.
U.S. e-commerce plays don’t have it so easy. Amazon, which has spent recent years bolstering sales at the expense of profits, got knocked around in April after it announced somewhat disappointing first quarter results.

On the other hand, the market was happy to overlook the fact that JD.com is profitless because of its stunning revenue growth. The company’s sales grew 68% last year after surging 98% in 2012. This is particularly true given the potential for the market that JD and also Alibaba are playing in.

Morningstar’s consumer equity strategist R.J. Hottovy notes that “you’ve seen tremendous amount of wage-rate growth among that lower- to middle-income consumer” in China that Alibaba and JD are wooing. “The expectation is that we’ll continue to see more disposable income devoted to online purchases within that market,” he said.

TIME China

Meet the Super-Hot Chinese IPO Everybody’s Talking About

NYSE Opens For Trading A Day After Major Losses
John Moore—Getty Images

As the anticipation on Wall Street builds for Chinese Internet giant Alibaba’s upcoming public offering, a smaller competitor is benefiting from the hype with its own successful IPO.

JD.com, an online retailer in China similar to Amazon, raised an impressive $1.78 billion Wednesday night when its IPO priced at $19 per share, above the expected range of $16 to $18. The company’s stock leapt 16 percent to $22 in early morning trading, pushing the company’s market capitalization above $29 billion.

Like Alibaba, JD.com has benefited from the explosive growth of China’s Internet population in recent years. The company’s revenue, generated almost entirely from the direct sale of products, has ballooned from $3.4 billion in 2011 to $11.5 billion in 2013. JD.com has 47 million active customers who completed 323 million orders in 2013.

However, because the site operates like Amazon, it faces the same costs related to buying products to sell and managing fulfillment centers to ship them out quickly. The company posted an $8 million net loss in 2013 and larger losses in the two years prior. Alibaba, which manages a merchant marketplace instead of selling directly to consumers, does not have to deal with such costs and posts profits that are unparalleled in U.S. online retail.

Other Chinese tech companies have also had solid Wall Street debuts. The Twitter-like social network Weibo arrived on the Nasdaq at the low-end of its IPO range and is currently trading about 8 percent above its initial price of $17. Online retailer Jumei, which specializes in beauty products, saw its stock jump 24 percent in its first day on the market earlier this month. Combined, the successful offerings bode well for Alibaba mega-IPO, which could be the largest in U.S. history.

TIME Companies

Meet the Visionary Behind the World’s Largest IPO

Tenth Anniversary of Alibaba Group Founding
HANGZHOU, CHINA - Alibaba Group Chairman and Chief Executive Officer Ma Yun dressed as a punk rocker performs during the 10th anniversary celebration of Alibaba Group founding at Huanglong Sports Center on September 10, 2009 in Hangzhou, Zhejiang Province of China. (Photo by ChinaFotoPress/Getty Images) ChinaFotoPress—Getty Images

Alibaba founder Jack Ma doesn't know how to code and likes to sing love ballads while wearing blond wigs, but he's also a ruthless businessman that is more than willing to crush his competitors

Chinese e-commerce giant Alibaba will play host to one of the largest public offerings ever in the coming weeks. But the company, now the largest online retailer in the world, sprung from an unlikely source—a former English teacher with no significant background in technology. Jack Ma, Alibaba’s executive chairman and lead founder, brings an outsider’s perspective to the often insular world of tech. Here are five things to know about China’s version of Steve Jobs:

He’s not a hacker

Many tech CEOs, from Steve Jobs to Bill Gates to Mark Zuckerberg, are lifelong computer geeks who dreamed up their disruptive companies in dorm rooms or parents’ garages. Ma is different (though Alibaba did start in his Hangzhou apartment). He flunked his college entrance exam twice and didn’t begin using the Internet until 1995. Ma has said he has never written a single line of code for Alibaba.

He’s not Alibaba’s CEO, but he’s running the show

Ma owns 8.9 percent of Alibaba, making him the largest individual shareholder in the company (tech firms Yahoo and Softbank both own more). Beyond that stake, though, he has an outsized influence on the company due to its unusual governance structure. A group of 28 partners, including Ma, get to select a majority of Alibaba’s board of directors. Yahoo and Softbank, which select some of the other board members, have ceded control of most of their votes to Ma and his early partner Joe Tsai. Even though Ma is no longer the CEO of the company, he handpicked his successor, Jonathan Lu. In essence, it will take a lot more effort to remove Ma from power than was needed to give Steve Jobs the boot from Apple in the 1980s.

He wants to control more than retail

Alibaba’s three largest retail marketplaces account for more than 80 percent of its revenues, but the company is rapidly expanding into other businesses. The company also runs a cloud computing service and launched a PayPal-like service for digital transactions several years ago (that business, called Alipay, is now a separate company that is not part of the IPO). Alibaba has also invested in a wide range of other companies, including the social network Weibo, the YouTube-like Youku Tudou, and the messaging app Tango.

He’s an eccentric

Jack Ma is hardly a buttoned-up executive. He has sung “Can You Feel the Love Tonight?” while wearing a blond wig, a black leather jacket and lipstick. He has compared himself to the movie character ET. He likes to refer to himself in the third person. He held a three-hour performance/party to commemorate stepping down from his CEO role last year. Basically, he’s a big deal and he knows it.

He’s up for a good fight

Ma is a huge martial arts buff, so much so that he started a Tai Chi school with Jet Li. But he also has a fighting stance when it comes to his company. When eBay tried to invade China in the early 2000’s, Ma launched a competing service, TaoBao Marketplace, that offered free listings. The much larger eBay was forced to retreat from the country, and today Alibaba dwarfs eBay in both profits and gross volume sales. If Ma and his company decide to turn their attention to U.S. customers as well as U.S. investors, Alibaba could be a threat to e-commerce giants such as eBay and Amazon.

TIME stocks

Market Meltdown: Tech Stock Slaughter Continues

New York Stock Exchange Opens After Friday Declines
Traders work on the floor of the New York Stock Exchange on May 5, 2014 in New York City. Spencer Platt—Getty Images

As some of the most high-flying technology stocks continue their dramatic declines, one Wall Street analyst calls it a "reality check" for investors

It’s a bloodbath.

Technology stocks continued their stomach-churning free fall Wednesday, wiping out billions of dollars in shareholder value as investors shunned one-time market darlings.

The selloff affected old-school Internet stalwarts like AOL as well as newly public firms such as Twitter, reflecting investors’ growing disillusionment with so-called growth companies particularly in the Internet sector.

After a remarkable five-year run in which the tech-heavy Nasdaq index rebounded from the depths of the Great Recession to soar 135%, fueling high-flying IPOs from the likes of Facebook, Groupon and Zynga, many tech investors have hit pause.

The biggest victims of Wednesday’s carnage were network security firm FireEye (down 24%), AOL (down 21%), Groupon (down 21%), and Candy Crush maker King Digital (down 13%).

“We’ve seen dramatic declines, and for some of these names it’s reasonable to call what’s happened a crash,” says Scott Kessler, ‎Head of Technology Sector Equity Research at S&P Capital IQ. “It’s painful for investors, but the market had a banner year last year, the fourth year of a bull market, so it makes sense for there to be a pullback.”

Twitter, which tumbled 18% Tuesday as early investors were allowed to sell shares for the first time, continued its plunge, declining nearly 4% on Wednesday. Twitter, which went public last November, has shed more than 50% of its value since the beginning of the year.

“This is a reality check where people are saying we’re in a speculative bubble around a few discrete stocks that is bursting or should burst,” says Kessler. “For some of these companies, the valuations are becoming harder to rationalize or even understand.”

Yahoo, the purple-hued Internet pioneer, declined by an ominous 6.66% on Wednesday, and is down nearly 8% so far this year. Online video game company Zynga fell 4% on Wednesday. Facebook was down 2%, Amazon was off by 1.57%, and the list goes on.

Kessler points out that the meltdown is affecting specific slices of the technology market, particularly “high-multiple, high-visibility” Internet and social media companies. “The key consideration is how folks are defining technology,” he says. The tech-heavy Nasdaq index, bolstered by still-thriving companies like Apple (up more than 7% this year), is only down 1.5% in 2014, which belies the dramatic declines experienced by several high-profile Internet names.

The sense of gloom and doom among Internet stocks could put a damper on the IPO market, which was booming earlier this year. U.S. technology IPOs increased by 100% in deal volume in the first quarter of 2014 compared to one year earlier, with 12 deals comprising $1.6 billion, according to a new study from consulting giant PwC.

“King Digital came public and the stock didn’t do well, so people are starting to wonder if too many companies are coming public too quickly at too high valuations,” says Kessler.

A cooling IPO market could put the brakes on two of the most anticipated IPOs of the year, cloud computing upstart Box and digital payments company Square, led by Twitter co-founder Jack Dorsey. But Kessler doesn’t think the tech weakness will affect the Big Kahuna IPO of the year, Alibaba, which just announced plans to go public, “unless market conditions continue to deteriorate materially.”

It’s difficult to predict how long the selloff will continue, and investors would be wise to avoid trying to time the bottom of the market, which is a perilous game. But one thing seems certain: The sky-high valuations enjoyed by many tech stocks over the last few years may not return for some time.

“It’s somewhat reminiscent of what we saw 15 years ago,” says Kessler. “A lot of these consumer stocks are household names and are constantly talked about by investment and media types, so there’s a tremendous amount of attention on them. But I repeatedly tell people that just because these companies are impressive and interesting does not mean they’re safe and sound investments.”

TIME Retail

These 2 Charts Show How Enormously Powerful Alibaba Is

As Chinese e-commerce giant Alibaba prepares for its initial public offering in the U.S., these two charts show how it has become so enormously successful, and why its IPO is expected to raise as much as $20 billion.

Correction appended, May 7

Get ready to hear a lot about Alibaba in the coming weeks. The Chinese e-commerce giant filed for its initial public offering in the United States Tuesday, and the hype machine is quickly heating up for what could be the largest tech IPO ever. Though Alibaba’s filing indicates that the company plans to raise just $1 billion, that number is only a placeholder — the company is expected to raise as much as $20 billion in its offering, leading to an overall valuation as high as $250 billion.

What is it about Alibaba that’s causing such a furor on Wall Street? The uproar is most easily explained through these two charts:

Alibaba sales volume


Massive volume: Alibaba says it’s the largest e-commerce company in the world. The company operates a wide number of businesses, but the most lucrative are 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. These sites and their 8 million vendors generated a massive $248 billion in retail transactions in 2013 between them, dwarfing both eBay and Amazon.

Alibaba processed 254 million orders on a single day last year. Amazon, by comparison, sold 36.8 million items on Cyber Monday in December. With China’s online population expected to grow to 800 million by next year, Alibaba will soon have even more customers to serve.

graph (6)


A low-expense business model: The key to Alibaba’s financial success—and a significant differentiator from Amazon—is that the company doesn’t actually sell any products. Instead, Alibaba operates vast marketplaces for third-party sellers who either pay a commission for sales or pay an advertising fee to have their wares displayed more prominently on Alibaba’s sites. Amazon spent $8.6 billion on its fulfillment centers in 2013, a cost that never dings Alibaba’s bottom line. Alibaba also has less than 21,000 full-time employees and 4,500 part-time customer representatives, compared to 33,500 total employees for eBay and 117,300 for Amazon. In short, the company doesn’t have to spend more to make more to the same extent that Amazon does.

Before you call your broker to bet the farm on Alibaba’s IPO, though, there are some caveats to consider. The company has a troubled history with counterfeit items, for example. There were once so many knockoff goods on Alibaba’s shopping sites that it was on the U.S. government’s list of notorious markets, but the company says it has since cleaned up its act. It’s also worth learning about the company’s odd governance structure that makes it nearly impossible to remove chairman Jack Ma from power. And even if Alibaba continues flying high, it’s possible the Wall Street hype machine could over-inflate its stock. That’s what happened to Facebook, the last heavily-sought tech stock, which didn’t reach its IPO price for its first 14 months as a public company.

Correction: The original version of this story misstated the number of vendors for Alibaba’s websites. Taobao Marketplace, Tmall and Juhuasuan have 8 million vendors between them.

TIME The Brief

Obama Offers U.S. Help for Nigeria After Boko Haram Kidnaps More Girls

Welcome to #theBrief, the four stories to know about right now--from the editors of TIME.


Here are the stories TIME is watching Wednesday, May 7:

  • Barack Obama pledged American help for Nigeria after eight more girls were abducted by Boko Haram Tuesday in addition to the more than 200 already held captive. The U.S. will send military, law enforcement officials and hostage negotiators in an effort to return the girls to their families.
  • Few Tea Party challengers unseated their incumbent GOP rivals in Tuesday’s Republican primaries in North Carolina, Ohio, and India.
  • Chinese e-commerce giant Alibaba is getting ready to go public in the U.S. in what could be the biggest tech IPO in history.
  • Kevin Durant was named NBA MVP after having a stellar statistical season and leading his Oklahoma Thunder to the playoffs.

The Brief is published daily.

TIME alibaba

Alibaba’s Massive U.S. IPO Could Top Facebook’s Debut

Alibaba founder Ma gestures during celebration of 10th anniversary of Taobao Marketplace, China's largest consumer-focused e-commerce website, in Hangzhou
Alibaba founder Jack Ma gestures during a celebration of the 10th anniversary of Taobao Marketplace, China's largest consumer-focused e-commerce website, in Hangzhou, May 10, 2013. China Daily/Reuters

Last year, the Chinese e-commerce business that is part-owned by Yahoo handled $248 billion in transactions, more than Amazon and eBay combined. The company's IPO could be the largest in tech history

Chinese e-commerce behemoth Alibaba has filed documents with the Securities and Exchange Commission to go public in the U.S., setting the stage for what could become the largest technology stock offering in history.

If successful, Alibaba’s IPO could eventually value the company at substantially more than $150 billion, according to Wall Street analysts, in what would amount to a windfall for Yahoo, which owns 22.6% of the e-commerce giant. Alibaba’s public debut would be the largest ever by a Chinese company in the U.S. public markets.

Alibaba, which was founded 15 years ago by English teacher-turned-entrepreneur Jack Ma, dominates the Chinese e-commerce market, powering four-fifths of all online commerce in that country, according to Reuters. Along with its flagship Taobao website, the company also operates a digital payments service and a cloud computing business.

In its filing with the SEC, Alibaba said it aims to raise $1 billion, but that figure is a placeholder amount used to calculate registration fees. Wall Street analysts believe Alibaba could eventually top Facebook’s 2012 $16 billion IPO, which set a record as the largest technology stock offering in history. Alibaba has yet to decide whether to list its shares on the New York Stock Exchange or the Nasdaq.

Alibaba aims to sell a 12% stake to the public, according to Bloomberg, which could generate as much as $20 billion in new capital for the company. In the coming months, Alibaba will embark on a “road show” designed to woo Wall Street investors. Demand for a piece of the IPO is expected to be intense because Western investors are eager to gain exposure to China’s massive and fast-growing e-commerce market.

Alibaba could eventually have a market valuation of between $150 billion and $200 billion, according to Jeffries technology analyst Brian Pitz, who estimates that Alibaba accounts for about 75% of Yahoo’s valuation, along with other Asian assets and cash holdings.

Yahoo owns 22.6% percent of Alibaba, and is expected to sell a 9% stake, which could generate more than $10 billion for the purple-hued Silicon Valley pioneer depending on the final price of the IPO.

At $200 billion, Alibaba would be worth more than U.S. tech titans Facebook and Amazon, but it would still trail Apple and Google, the world’s two most valuable technology companies. Last year, Alibaba handled $248 billion in online transactions, according to the company’s IPO filing, more than Amazon and eBay combined.

Alibaba’s meteoric growth has been powered by economic and demographic trends in China, including the ongoing emergence of a large, tech-savvy middle class. In its IPO filing, Alibaba cited China’s population of 1.35 billion people, including 618 million Internet users. The company said there are 500 million mobile Internet users and 302 million Internet shoppers in China.

Alibaba said its logistics partners delivered 5 billion packages last year, substantially more than UPS, which delivered 4.3 billion packages globally.

“There is less of a retail culture in China, ie. ‘Let’s go shopping on Sunday,'” Paul Sweeney of Bloomberg Industries told PBS Newshour. “They don’t necessarily have that as much, and as a result, e-commerce has actually grown much faster in China than it has in a lot of the Western markets.”

“The Alibaba opportunity there is tremendous,” Sweeney added. “U.S. and Western investors recognize that. There are very few ways for Western investors to invest in this growth story. Alibaba will be by far the largest, most liquid, and arguably safest investment vehicle.”

Last month, Yahoo reported tepid results for its core business, but the company’s stock jumped 8% based on Alibaba’s revenue, which soared 66% from the year before. The company’s net income was $1.6 billion, more than double the previous year. Yahoo shares moved 1% higher in after-hours trading on Tuesday, following Alibaba’s IPO filing.

“The bottom line is that Yahoo’s stock continues to be driven by Alibaba results,” Macquarie tech analyst Ben Schachter wrote in a recent note to clients. “With its reaccelerating revenue growth and high margins, Yahoo will continue to reap the rewards of its Alibaba holdings.”

Investment banking giants Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, Morgan Stanley and Citi are listed as underwriters for Alibaba’s stock offering.

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