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Alibaba Stock Soars in Trading Debut

Chinese e-commerce giant Alibaba began trading on the New York Stock Exchange this morning at 11:55 a.m. at a price of $92.70, and ended the day at $93.89, 38 percent above its initial public offering price of $68.00, putting the market value of the company in excess of $230 billion. The deal raised $21.8 billion, the most ever for a U.S. IPO.

Though the name Alibaba is not a familiar one to Americans (88 percent of those polled by Thomson Reuters the day before the offering had never heard of the company), in China it is synonymous with the Internet. Founded by former teacher Jack Ma in his Hangzhou apartment in 1998, Alibaba, which trades under the stock symbol BABA, had 300 million online buyers in 2013 (a number almost equal to the US population), up 44 percent from the previous year. In the most recent fiscal year, according to company filings, Alibaba earned a net income of $5 billion on revenues of $9.37 billion, surpassing the profit in that period of Amazon, Facebook and eBay combined. Almost $250 billion worth of merchandise was sold in China through Alibaba last year.

Online shopping represents less than 8 percent of Chinese consumption in 2012, but is projected to grow by almost 30 percent annually through 2016. Alibaba commands by some estimates upwards of an 80 percent share of e-commerce sales in China. Its two main businesses, Taobao and Taobao Mall (T-mall) represent an estimated 60 percent of the packages sent through the Chinese postal system. Less than half of China’s population, or 623 million people, currently has Internet access, a number that is expected to grow to 800 million by 2016.

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Taobao, which means “treasure hunt” in Chinese, is a C2C platform where individuals can set up and run their own online “store,” similar to eBay’s marketplace. Millions of Chinese have become Taobao merchants in a phenomenon that has been credited with growing the middle class in that country. Taobao has had such an impact on life in China that there are nearly 20 so called Taobao villages, or towns where at least 10 percent of the households operated online stores selling more than $1.6 million per year. Taobao has opened up a cottage industry of manufacturers that previously could only sell their wares on a wholesale basis and had very little direct access to consumers. Poor families in remote villages have become wealthy almost overnight from selling on Taobao.

B2C site T-mall, with over 70,000 businesses operating e-commerce storefronts, is attracting many American brands anxious to grow their business in China including, Nike, Godiva, Gap, Apple and many others. As Alibaba’s e-commerce and mobile commerce dominance grows along with Chinese appetite for brands, more US companies will decide to launch in China with T-mall.

Although Alibaba is reportedly eyeing international growth, it will have its hands full keeping up with growth opportunity in China as more of the country’s 1.35 billion people gain not only Internet but mobile access. The company’s multiple online business verticals include Alipay, an online payments system that will not be part of the IPO, cloud services, music and video streaming services, a money market fund, a travel agency, and taxi-booking services, among others.