Alibaba Group founder and Chairman Jack Ma poses at a recent conference. Alibaba's shares are expected to begin trading on the NYSE on Friday. (Photo: Associated Press)
Alibaba Prices Shares At $68 In Largest US IPO Ever
Ryan Mac Forbes Staff
By Ryan Mac and Brian Solomon
Chinese e-commerce powerhouse Alibaba Group priced shares on Thursday for its upcoming initial public offering at $68 each, putting the finishing touches on what is to be the largest IPO for a U.S.-listed company ever.
According to various reports on the day before the company expects to list shares on the New York Stock Exchange, Alibaba and its selling shareholders will raise a combined $21.8 billion, a figure that could rise to $25 billion if underwriters exercise an option to buy more shares at the IPO price. At $68 per share, Alibaba is valued at about $167.6 billion and is one of the most valuable technology companies on the planet, ahead of Amazon.com , which has a market capitalization of $150.2 billion as of the close of Thursday trading, and behind Facebook, which is valued at $200.2 billion.
Friday will mark the beginning of Alibaba's next phase as a public company after months of preparation that started well before the company's filing of IPO registration documents in May. Its last few weeks as a private entity were marked by a whirlwind of activity that included packed investor roadshows from Hong Kong to London and constant revisions to its public offering that included shifts in its relationship with payment service Alipay and an increase in the expected share price range.
By selling shares at $68, Alibaba will hit the top end of that modified range, a sign of strong investor interest the most-anticipated public stock debut of the year and the largest in U.S. history. That title was previously held by Visa , which raised $17.9 billion in its 2008 offering. The Agricultural Bank of China holds the record for the largest global IPO ever after its $22.1 billion debut in 2010 on the Hong Kong Stock Exchange.
"Expectations have been so high and it's been a long gestation period for the company to the IPO," said Duncan Clark, chairman of BDA China, who knew Alibaba founder and former English teacher Jack Ma back when the e-commerce firm from a small Hangzhou apartment in 1999. Clark attended the company's investor presentation last week at New York's Waldorf Astoria hotel. "What a change, going from a very modest equivalent of a garage to the other end of the scale in Midtown Manhattan in 15 years," he added.
Despite its humble origins, Alibaba is now the largest e-commerce company in the world, bigger in total gross merchandise volume than Amazon and eBay combined. In the 12 months ending on June 30, Alibaba posted total gross merchandise volume of $296 billion across 14.5 billion orders from 279 million active buyers. Benefitting from rapid economic growth within China over the last decade, the company has developed an all-encompassing retail ecosystem that ranges from payment systems to cloud computing services all with the purpose of supporting its main e-commerce plays including Taobao Marketplace and Tmall.
Net income for the year ending on March 31 came in at $3.77 billion, or 44.6% of the company's $8.46 billion in revenue. The company's latest earnings report showed further growth, with sales in the quarter ending on June 30 at $2.54 billion, up 46% from the same period in 2013, while net income tripled from last year to $2 billion.
Alibaba also displayed advances in mobile commerce, where it has fierce competition from Tencent and other Chinese internet companies. Mobile revenue was about $400 million for the quarter, up from $190 million in the previous quarter.
Chairman Ma and Vice Chairman Joseph Tsai are the only two executives at the firm who will be unloading significant amounts of stock in the IPO. The 49-year-old Ma plans to sell about 12.8 million shares, or about 6% of his current stake in the firm, which–at $68 per share–would net him about $867 million before taxes. Banks leading the offering also have the option to purchase an additional 2.7 million shares from the billionaire, who will still remain Alibaba's largest individual shareholder after the IPO with a stake of more than 7.7%. Tsai, long known as Ma's right-hand man, will be disposing of 4.25 million shares, which could rise to 5.15 million shares with the banks' exercisable purchase option. He could make as much as $350 million before taxes and will own about 3.2% of Alibaba following its debut on the New York Stock Exchange.
While Alibaba's largest stockholder, Japanese investment giant SoftBank, will not be selling in the IPO, its second largest shareholder, Yahoo , certainly will be. The American technology firm, which at one point owned about 40% of the company after a savvy $1 billion investment in 2005, is selling a little less than 122 million shares, which at $68 per share amounts to about $8.3 billion in pre-tax cash. (Yahoo could take in an additional $1.2 billion before taxes if underwriters choose to purchase an additional 18.3 million shares.) The Marissa Mayer-led company will own at least 15.6% of Alibaba after the conclusion of the IPO.
The company is expected to begin trading on the New York Stock Exchange on Friday morning under the ticker "BABA."
Gallery: The Biggest U.S. IPOs In History
Update on Sept. 29, 2014 at 1:23 p.m. PDT: An earlier version of this post mistakenly said that Jerry Yang was Yahoo CEO at the time of his company's investment into Alibaba. Terry Semel was Yahoo CEO when Yahoo invested into Alibaba, but Yang is known for being influential in the deal. The post has been updated to reflect these changes.
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Ryan Mac
I'm a San Francisco-based reporter covering the agitators in technology and e-commerce. I started at Forbes as a member of the wealth team, putting together the magazine...