8th September 2014
Chinese internet giant Alibaba is launching its investor roadshow in New York this week ahead of its stock market flotation with an anticipated valuation of up to $162 billion (£98 billion).
The roadshows are expected to drum up interest from fund managers and other institutional investors around the globe in the technology company with sales greater than those of Amazon and eBay combined.
Alibaba’s online marketplace comprises 279 million buyers and 8.5 million sellers, but experts have warned that it is much less well known to retail investors than its international technology rivals and this could dampen its appeal to individuals. While Amazon and eBay have international reach, Alibaba is focussed on its domestic market.
Another potential deterrent to retail investors is the fear of interference in the marketplace from the Chinese government.
With Chinese internet usage at only 50 per cent, Alibaba could benefit from vast potential growth as more consumers go online, so some pundits suggest it has more than enough to keep it busy on the home front, without worrying about international expansion.
Three major Chinese tech companies – Baidu, Tencent and Dalian Wanda – have recently joined forces, creating a massive potential competitor to Alibaba.
Some smaller investors are planning to gain exposure to the Alibaba flotation by investing in the company’s major shareholders. Several US-based brokers told Reuters that their clients are investing in Japan’s Softbank Corp, which has a 34.1 percent stake in Alibaba and Yahoo Inc, which has a 22.4 percent holding.
Mark Hawtin, portfolio manager at GAM Star Technology, says investors should be mindful of the fact that the initial public offering (IPO) has been delayed due to governance issues and the relationship between members of management and the company, as well as the share of profits the company takes from its financial services affiliate Alipay.
Investors should be aware that Alibaba first wanted to list in Hong Kong, but was prevented from doing so because of these issues, even though they have now been resolved to the satisfaction of the New York Stock Exchange.
Hawtin says that Alibaba has shown “spectacular” growth on its mobile platform and that the flotation is a “fascinating deal”, but investors should be careful not to get too carried away by the hype.
He says that Alibaba’s size, margin and growth profile is not dissimilar to Facebook and so he expects it to be at least as valuable, possibly more so given the faster revenue growth and adds that benchmarks suggest it is good value within the range proposed.