(Updates with relative valuation in 13th paragraph. For more on Alibaba’s IPO see EXT8.)
May 7 (Bloomberg) -- Alibaba Group Holding Ltd., which rode China’s emergence as an economic superpower over the last 15 years to become a massive online marketplace for everything from forks to forklifts, filed yesterday for what could become the largest U.S. initial public offering ever.
Founded by former English teacher Jack Ma, 49, in a Hangzhou apartment, Alibaba started with a few dozen items for sale. The company and shareholder Yahoo! Inc. might raise as much as $20 billion, topping a $19.65 billion offering by Visa Inc. in 2008, data compiled by Bloomberg show.
Alibaba didn’t specify the number or price of shares it will offer or what valuation it will seek. Those details will be provided closer to the actual sale. The filing has a $1 billion placeholder amount, which is used to calculate registration fees and will change.
The company’s market value is estimated at $168 billion, bigger than 95 percent of the Standard & Poor’s 500 Index -- and the most valuable Internet company after Google Inc., according to data compiled by Bloomberg. The company is looking to sell about a 12 percent stake, people familiar with the matter have said, which would make the offering around $20 billion based on the estimated value.
The value of transactions on Alibaba’s platforms was $248 billion last year. The number of annual active buyers rose 14 percent to 231 million, each placing an average of 49 orders over that period, according to the filing.
“Alibaba has a huge amount of scale,” said Jeff Papp, senior analyst at Oberweis Asset Management Inc., which oversees $1 billion in Lisle, Illinois. “The gross market value of the stuff that they’re selling is massive, and what that’s allowing them to do is create a model in a way that’s uniquely profitable.”
The IPO will be a boon for Yahoo, which plans to sell part of its 22.6 percent stake in Alibaba. Other shareholders include SoftBank Corp., which will continue to own more than 30 percent of Alibaba after the offering. Alibaba indicated that it too will sell shares in the IPO, saying it will use the proceeds for general corporate purposes.
Yahoo dropped 4.2 percent to $34.96 as of 9:43 a.m. in New York today. SoftBank fell 5.1 percent to 7,420 yen at the close of trading in Tokyo.
With yesterday’s Securities and Exchange Commission filing, Alibaba begins a process that could take several months before it becomes a publicly traded company -- and involve revisions to the document and meetings with investors during a formal roadshow, after which a price for the shares will be set. The company also has to decide whether to list its shares on the New York Stock Exchange or Nasdaq Stock Market.
Alibaba is approaching U.S. markets riding a wave of investor enthusiasm for Chinese technology and Internet companies. Eight such companies filed for $2.3 billion worth of IPOs in the first quarter, while 26 already-listed companies from web-portal Baidu Inc. to security-software maker Qihoo 360 Technology Co. have gained about 60 percent in the past 12 months, data compiled by Bloomberg show.
Still, the company filed to go public on a day that microblogging website Twitter Inc. led a selloff in U.S.-traded Internet stocks -- slumping 18 percent yesterday after lifting restrictions on sales of shares by insiders and early investors.
Ma started the online marketplace in 1999 and its valuation has surged -- from a few billion dollars when Yahoo acquired its stake in 2005, to $32 billion when Silver Lake Management LLC, Temasek Holdings Pte and DST Global bought in six years later, to $153 billion in a February survey of analysts. That average estimate jumped again by 10 percent in a survey conducted last month.
At $168 billion Alibaba is valued at 21 times last year’s sales of $8 billion, according to financial information disclosed by Yahoo. That compares with 1.8 times sales at Amazon.com Inc., 4 times at EBay Inc. and 5.8 times at Google Inc., according to data compiled by Bloomberg.
Alibaba would rank 34th among the world’s largest companies by market capitalization, behind China Construction Bank Corp. and French energy company Total SA, data compiled by Bloomberg show. It would be one of only five Chinese companies in the top 50 globally, with PetroChina Co., the country’s biggest oil and gas producer at the top of that group with a $219 billion valuation.
PetroChina and China Construction Bank have shares that are traded in New York, in addition to listings in Shanghai and Hong Kong. In its filing, Alibaba said it may conduct a public offering in China. The company hasn’t set a timetable or decided on a venue for that listing.
Alibaba provides various marketplaces for buyers and sellers, as well as services that help them conduct their businesses. Taobao Marketplace, founded in 2003, enables millions of individuals and small businesses to sell products. Tmall.com operates as a virtual shopping mall, with retailers and brands offering products. Alibaba’s other businesses include Juhuasuan, a flash-sales model, and eTao, a shopping search engine.
Alibaba’s profit in the three months through December more than doubled to $1.35 billion as revenue surged 66 percent to $3.06 billion, according to a Yahoo investor presentation April 15. Alibaba’s first-quarter financials were not included in the prospectus.
“The problem in China in the March quarter is that it includes the two weeks of the Lunar New Year,” Francis Gaskins, research director at financial media site Equities.com, said by phone from Marina del Rey, California. “A lot of these consumer companies don’t have a really good March quarter, so I would anticipate the March quarter will not exceed the December quarter.”
Alibaba’s businesses could be affected if China’s economic growth continues to cool. Increasing competition on Taobao and Tmall has been squeezing profit margins for merchants, which could discourage them from using the platform.
The company’s growth may peak along with its expansion in China, Francis Lun, the chief executive of Geo Securities Ltd., said on Bloomberg television last month. Growing the business outside of China won’t be as easy, he said, and one potential growth area has been blocked by regulators.
China’s central bank in March blocked the issuance of virtual credit cards, in a move to tighten restrictions on online financial products. Alibaba’s Alipay.com affiliate was among those planning to offer those cards.
Tightening oversight of its payments affiliate is one of the main risks Alibaba faces, the company said in its filing. Alibaba’s Yu’E Bao fund has also come under scrutiny as Chinese state-owned banks call for more regulation. China’s Internet infrastructure, slowing economic growth, regulatory oversight and comparatively obscure financial reporting requirements are among other factors that could potentially harm Alibaba’s business, the company said.
Alibaba’s U.S. filing comes after it was unable to persuade Hong Kong regulators to change rules to give Ma and other executives a unique way to control the company. In yesterday’s filing, Alibaba outlined a governance structure that allows a group of 28 partners to nominate a majority of its board, with shareholders able to vote on the nominees.
Yahoo has been gradually exiting its stake in Alibaba, which bought back 20 percent of its shares from Yahoo in 2012, in a deal that valued the Chinese company at $35 billion. Sunnyvale, California-based Yahoo is poised to pare 40 percent of its remaining Alibaba stake in the IPO. The money could give Chief Executive Officer Marissa Mayer a chance to accelerate dealmaking or do stock buybacks.
Visa raised $19.65 billion in 2008, while Facebook -- which initially filed for an IPO with a $5 billion placeholder amount -- raised $16.01 billion. Among other Chinese companies to tap U.S. markets, the largest was the $3.4 billion share sale of China Life Insurance Co. in 2003, data compiled by Bloomberg show.
As it heads toward the public markets, Alibaba has been moving rapidly to bolster its reach with investments and acquisitions in China and abroad. The company is in talks to regain a stake in its Alipay payments affiliate, a person familiar with the matter said this month. It transferred ownership of Alipay to a company controlled by Ma in 2010.
In April, Alibaba said it agreed to acquire AutoNavi Holdings Ltd., China’s most popular mobile mapping service, and was part of a $250 million funding round for San Francisco-based ride-sharing application Lyft Inc. In March, Alibaba said it would invest almost $700 million in Intime Retail Group Co., a Beijing-based owner of department stores and supermarkets.
Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley and Citigroup Inc. are managing the sale.