Alibaba, the Amazon, eBay, and Paypal of a country with 618 million internet users, is going public. The company will raise around $20 billion at an approximately $150 billion valuation, with the roadshow scheduled to begin March 25; the underwriting banks are expected to make $400 million in fees on the deal.
That valuation is built in part on assumptions about the future growth of Chinese ecommerce. China already buys more by dollar value online than the US does, and KPMG estimates that by 2015, online transactions in China will hit $540 billion, up from $190 billion in 2012.
The market isn’t without competition. Alibaba is currently in the midst of fighting for payments and messaging users with Tencent, a gaming and social media company. Forrester Research's Bryan Wang calls it “one of the most expensive competitions in online history”.
Tencent recently reported that its profit increased just 1% from the third to fourth quarter. Both companies would be significantly affected if the Chinese government followed through on recent hints and regulated third-party payment systems.
One thing Alibaba is unlikely to have to contend with is meddlesome shareholders. Reuters’ James Saft points out that the company chose to list on the NYSE rather than in Hong Kong for reasons of simple regulatory arbitrage. Last year, Hong Kong regulators rejected Alibaba’s proposed dual share structure, so the company decamped to New York instead. The NYSE allows dual-class listings, and some exemptions from the Sarbanes-Oxley Act for foreign companies. Bloomberg View’s James Pesek thinks the decision to list in New York has drawbacks for Alibaba, including “greater accounting scrutiny, increased exposure to lawsuits and far more stringent intellectual property rights laws”.