Alibaba’s New York debut

By Ben Walsh
March 19, 2014

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”.

The good news about this IPO is that you don’t need to be worried about your Alibaba allocation: in fact, it’s quite easy to build up a stake in the company even before it goes public. The FT’s Josh Noble details how some hedge funds have created synthetic ownership by buying shares in either Yahoo or Softbank, Alibaba’s two biggest shareholders, and then shorting everything the company owns except Alibaba. Investment banks like this idea because they get to sell more things to hedge funds. Hedge funds like it because they get to capture the pre-and post-IPO rise in Alibaba’s valuation without the illiquid annoyance of being a pre-IPO investor.

Matthew Klein takes the other side of the trade, trying to value Yahoo Inc without its stakes in Alibaba or Yahoo Japan. Yahoo’s core business, it turns out, is worth about negative $10 billion. – Ben Walsh

On to today’s links:

Charts
The day’s nerdiest income inequality chart – Chartbook of Economic Inequality

Cautionary Tales
“We must be careful not to get too enamored of statistics and data” – Emanuel Derman
The problem with data journalism – Alison Schrager

The Fed
The latest FOMC statement: Taper continues, Fed drops 6.5% unemployment threshold – Federal Reserve
Parsing the Fed: How the FOMC statement changed – WSJ

Your Daily Outrage
2 in 5 Rikers inmates have a diagnosed mental illness – NYT

JP Morgan
JP Morgan sells its physical commodities unit to a Swiss company run by “Bambi and Godzilla” – WSJ
Low-margin and capital intensive: why banks are selling their physical commodities businesses – David Weidner

Data Points
The US-Russia trade relationship is so minute it basically doesn’t exist – Fortune

Primary Sources
Bloomberg Media’s new strategy – Justin Smith

Jailhouse Musings
“It’s not a crime to have a plane.” – WSJ

Technically Speaking
“Friends don’t let friends ride the Elliot Wave” – FT Alphaville

Equals
French social theory, Dr. Seuss, and tech’s gender problem – Zeynep Tufekci

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