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What You Need to Know About Alibaba and the IPO

The Chinese megamerchant's impending arrival has Amazon running scared. Should you be too?


Photo: China Foto Press / Getty Images
 

Jack Ma, founder and executive chairman of Chinese e-commerce giant Alibaba, once donned a blond wig and leather studded jacket and sang a terrifying rendition of "Can You Feel the Love Tonight" to a stadium full of cheering employees. That's the kind of stuff you can get away with when your company is the hottest thing on the planet.

And Alibaba is about to get hotter. The world's largest web retailer just filed for what could be the largest initial public offering in American history. With subsidiaries that do what Amazon, eBay, PayPal, and Dropbox do, but on a larger scale, Alibaba is so big that it’s expected to surpass Facebook's $16 billion IPO, a record for internet businesses. So what should you know about Alibaba?

1. It’s going to be worth $200 billion: Alibaba's expected value after its first day of trading will likely reach the astonishing $200 billion mark. That would nearly double Facebook, which was valued at $105 billion after its first day on the market. Some project the value to go even higher—and with profits of $2.85 billion in the nine months that ended December 31, that’s not so crazy.

2. Owner Jack Ma is, um, an odd bird: You'll recall our opening anecdote, in which Ma dressed like a metal god to sing an Elton John song. It's not the only time Ma has performed for people paid to applaud him. Here he is kicking out a Chinese jam while wearing a fedora. Even before he was rich, Ma had a strange streak. Consider the day he named Alibaba. Brilliant CEO or yammering derelict? What does it matter? At this point Ma has proven his brilliance and eccentricity. To wit: He recently created a charitable trust worth as much as $3 billion, a move that stands out in a county where the wealthy are, as the Economist says, “a notoriously stingy lot.”

3. Yahoo! is going to make out like a bandit: In 2005, Yahoo dropped $1 billion for a 40 percent stake in Alibaba. That was a good move. Because of a 2012 agreement with Alibaba, Yahoo! will be required to sell nine percent of its stake in the company upon the IPO. That will net Marissa Mayer and her struggling web dinosaur around $15 billion. What happens next will be of great interest in Silicon Valley. Yahoo’s expected to use the bulk of that money on acquisitions, which Mayer has shown a flare for since she bought Tumblr for $1.1 billion last year. If you’ve been thinking of launching a start-up, now’s the time.

4. Alibaba is only getting bigger: Yahoo’s windfall is going to look like peanuts next to the money Alibaba will have to spend after the IPO. What will Jack Ma do with it? Buy other companies, former Apple CEO John Sculley told CNBC. Alibaba has already spent $3.5 billion in the past year acquiring a mapping company and a cable TV outfit, among many other things. It’s buying into Chinese online video market and getting involved in film production, moves that have Hollywood salivating at the chance to reach an underserved audience of more than a billion. But Alibaba’s not just looking to provide American businesses access to China, it wants a piece of the the largest economy in the world. The wheels are already in motion. Alibaba is currently launching an American e-commerce site, 11 Main, and it has stakes in Lyft, Shoprunner, and online antique shop 1stdibs.

5. It's bigger than its American counterparts, by a lot: Nearly everything you'll read about Alibaba compares it to American companies you know better and we don't intend to change that. We’ll start with 231 million. That’s the number of active users Alibaba has across its three main sites, more than eBay and Amazon combined. Naturally, Alibaba also has more sales than those two sites combined, with $240 billion exchanging hands last year. A company that sells so much stuff has got to ship a lot of stuff, and Alibaba ships A LOT OF STUFF. More than half of the parcels delivered in China are shipped by the company. There's only one American company that's got the upper hand on Alibaba and that's Wal-Mart, which remains the world's largest retailer…for now. 


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