What are we doing with Alibaba?

September 11, 2014

Next week marks the highly publicized IPO launch of Alibaba. Alibaba is an ingenious blend of Google and Amazon in the grand ecosystem of China. It provides e-commerce along with corralling revenue from paid search. Its success story rivals the most successful technology companies that have ever come to the marketplace.

Alibaba plans to offer 320 million shares with an initial indicated price range of between 60 and 66. Facebook, by comparison, offered 421 million shares at 38 on its initial day. At the estimated price range, Alibaba would rank in size as one of our top 20 largest companies by market capitalization, ahead of IBM and Amazon, and trailing Facebook by a slight amount.

Alibaba is a profitable engine. According to its accounting, they generated $1.7 billion in profits from $6.5 billion in sales last year. They boast a staggering 48% operating margin.

On any IPOs like this, we try to gain as many shares as we can for our clients. Since the size of this offering vastly exceeds GoPro, which came out earlier this summer, it is likely that our clients will be able to participate.

Will Alibaba provide profits ? Yes, most likely. The enthusiasm for this offering is enormous. The picture is more murky over the longer term. Alibaba faces intense competitive pressures from the likes of Baidu and Tencent as it seeks to protect its fat margins and cash flows.

We plan to invest in this company during this IPO phase/craze. At this point, our intentions would be to hold it only for the short term, which means, only for a few weeks.

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