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Chinese E-Commerce Giant Alibaba Plans IPO

Chinese e-commerce giant Alibaba filed papers Tuesday for an initial public (IPO) offering that could turn into the largest IPO ever for a tech firm, surpassing Facebook’s record $16 billion debut.

The company, which was founded by former teacher Jack Ma in his Hangzhou apartment in 1998, had 300 million online buyers in 2013 (a number almost equal to the US population), up 44 percent from the previous year. In the nine months ending December, according to company filings, Alibaba earned a net income of $2.9 billion on revenues of $6.5 billion, surpassing the profit in that period of Amazon and eBay combined. Almost $250 billion worth of merchandise was sold in China through Alibaba last year.

Although the company officially said it is seeking to raise $1 billion, it is likely that the public offering will raise much more than that. Facebook originally filed to raise $5 billion.

An IPO will make the 49-year-old Ma, the multi-billionaire who owns about 9 percent of the company, an even wealthier man. He stepped down as CEO last year but remains as chairman. He is the face of the company and its unofficial “Motivator in Chief.” He has been known to dress up and perform for customers at the firm’s annual “Alifest” event, last year donning a Lady Gaga-like outfit and belting out “Can you Feel the Love Tonight” to an enthusiastic crowd of attendees.

If everything goes as planned, the IPO should result in plenty of love and appreciation to go around, some of it in unlikely places. One of Alibaba’s major shareholders, Yahoo, owns almost a quarter of the stock, and under the terms of an agreement made with the company last year, would be required to sell over 200 million shares in the IPO as well, which could generate a windfall of up to $10 billion for Yahoo’s stockholders.

Alibaba’s biggest shareholder, Japanese telecom firm SoftBank Corp., says it will not sell any of its 37 percent stake in the Chinese tech titan–for which it originally paid $20 million– which is now worth an estimated $58 billion. SoftBank prefers instead to continue participating in what it believes will be huge upside growth.

So far, Alibaba hasn’t specified how much stock will be sold, at what price the stock will debut, or on what exchange it will sell. These details will emerge over the next few months as the IPO progresses. However, as the buzz builds and more investors become familiar with Alibaba and its various businesses, interest in the company and its potential will no doubt intensify.

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.

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.

The company reportedly has cash and cash equivalents of $7.9 billion on hand. An IPO will give it the ability to see continued growth, acquire other companies and preempt encroaching competition from the likes of Tencent and others.

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