The initial public offering (IPO) market has been going wild in 2014, with 94 companies jumping into the arena. The most highly-anticipated IPO among investors, though, is that of Alibaba Group Holding Ltd. Alibaba, one of the companies that led China’s emergence as an economic superpower over the last 15 years, filed to go public on Tuesday, May 6, 2014, for what could become the biggest initial public offering in U.S. history.
Alibaba was founded back in 1999 by the ex-English teacher Jack Ma, who collected $60,000 from 80 investors with the intention of creating an online marketplace for Chinese companies. Setting up his business in an apartment in Hangzhou, he began with a couple of dozen items for sale. Since then, Alibaba has come to take over internet retailing in China, which will soon be the world’s largest e-commerce market. It has moved beyond its initial objective of connecting businesses to each other to projects that enable companies sell directly to the public, through Tmall.com, and allow members of the public to sell to each other, through Taobao. Alibaba also boasts a shopping search engine, eTao, and a flash-sales model, Juhuasuan.
At the end of 2013, Alibaba had almost 21,000 employees, whereas the company now employs 24,000 workers. Regarding the company’s ownership, Softbank Corp. holds 34% of the firm, Yahoo! Inc. holds 24%, while Jack Ma owns 8.9% and Joseph Tsai 3.6%.
In 2012, the company accounted for 70% of China’s package deliveries, while the transactions conducted through the company’s platforms accounted for almost 2% of the country’s GDP. It is no wonder why top analysts regard Alibaba as the private company that has done more for China’s economy than any other public organisation. By September 2012, the company made $485 million profit and $4.1 billion revenue. On one single day in 2013, the company hit $5.75 billion in transactions. The company’s market value is now estimated at $168 billion, which is bigger than 95% of the Standard & Poor’s 500 Index, and is regarded as the most valuable internet company after Google.
The highly-anticipated IPO
In March 2014, Alibaba Group Holding Ltd. announced its plans to go public and picked New York as the place for its initial public offering, after Hong Kong refused to approve its proposed board structure, which would permit its partners to appoint the majority of the board. It finally filed in May to sell what is expected to be the largest U.S. initial public offering of all times.
The prospectus report officially lists the IPO as a $1 billion deal, but the number is just a placeholder to calculate registration fees. The company didn’t specify how many shares it will issue or what valuation it will look for. Those figures will be announced closer to the actual sale. Sources say that Alibaba is seeking to sell about a 12% stake, which would place the offering around $20 billion based on the estimated value, higher than Visa Inc.’s $19.65 IPO back in 2008 and General Motors’ $18.14 IPO in 2010.
The underwriters on the deal will be Deutsche Bank AG (DB), Credit Suisse Group (CS), Morgan Stanley (MS), JPMorgan Securities (JPM) and Citigroup Inc. (C). There’s a specific process to go through, before Alibaba becomes a publicly traded company, involving several meetings and revisions in order to set a price for the stock. The e-commerce giant also has to decide whether to list its stock on the Nasdaq Stock Market or the New York Stock Exchange.
Financial facts about the company
In the official prospectus, Alibaba reported that revenue for the first nine months of fiscal year 2014, was $6.5 billion, a 57% increase from the previous year, while net income for the same period was $2.9 billion, a staggering 305% surge on a year-over-year basis. The Chinese internet giant reported that revenue for Q4 in 2013 was $3.06 billion, a 66% increase from a year earlier. During the same quarter, profit more than doubled to reach $1.35 billion. These numbers have led to estimates that the company’s worth is around $245 billion.
Alibaba reported that 84% of its revenue derives from its e-commerce operations in China. Last year, the company had more than 231 million active users, who traded around $248 billion over Alibaba’s sites. In the same year, Taobao and Tmall processed $170 billion in transactions between them, which is more money spent than on eBay Inc. (EBAY) and Amazon.com Inc. (AMZN) combined. It is interesting to note that the firm occupies 80% of the e-commerce market in China, which is the second largest in the world. International trade stands for 12% of the company’s top line, while internet infrastructure and cloud computing account for 1.9% of the firm’s revenue.
The company also noted that 19.7% of its gross retail volume in the fourth quarter of 2013 came from mobile users. In the same time period, the organisation boasted 136 million mobile monthly active users. Alibaba is investing heavily in reaching customers through mobile devices such as tablets and smartphones. It owns shares in messaging app TangoMe and ride-sharing programme Lyft, which serves over 60 U.S. cities. Moreover, it has its own mobile operating system and is leasing spectrum from communication companies to offer mobile voice and data packages.
Traders are closely monitoring Alibaba’s IPO, as it is expected to move the markets. It is interesting to note, that the Chinese e-commerce market has surged by 120% on a year-over-year basis since 2003, while this year it is anticipated to reach $283 billion and outperform USA’s. Moreover, people who conduct online purchases in China more than doubled in three years, reaching 250 million. With a growing number of people starting to shop and the rest of the country’s population going online, analysts forecast that the e-commerce market will reach $420 to $650 billion in 2020. Alibaba’s founder, Jack Ma, stated that the immature nature of most Chinese offline retailers, will enable e-commerce to develop faster and further in China than in other developed countries. Taking into account these facts, investors ponder that there is a lot of room for Alibaba to grow even further.
Senior analysts believe that a good IPO valuation could be just the beginning of a glorious course. They claim that if Alibaba manages to retain its leading position in its industry and expand into other services, it could become one of the world’s most valuable companies five years from now, with possibly more than $1 trillion in transactions performed through its platforms each year.
With all these promising prospects, would you consider investing in Alibaba?
World shares sink as bond yields, commodities surge
By Ritvik Carvalho
LONDON (Reuters) – World shares sank on Monday as expectations for faster economic growth and inflation battered bonds and boosted commodities, while rising real yields made equity valuations look more stretched in comparison.
MSCI’s All Country World Index, which tracks shares across 49 countries, was down 0.4% after the start of European trade.
The pan-European STOXX 600 index was down 1%, at its lowest in 10 days. Germany’s DAX, France’s CAC 40 and Spain’s IBEX 35 index fell 1% each, Britain’s FTSE 100 lost 0.85% and Italy’s FTSE MIB index fell 0.9%. [.EU]
S&P 500 futures fell to their lowest since Feb. 4, down 1% on the day. [.N]
Bonds have been bruised by the prospect of a stronger economic recovery and greater borrowing as President Joe Biden’s $1.9 trillion stimulus package progresses.
Federal Reserve Chair Jerome Powell delivers his semi-annual testimony before Congress this week and is likely to reiterate a commitment to keeping policy super easy for as long as needed to drive inflation higher.
“The coming week is relatively thin on the international data agenda, but after the recent rise in long bond yields, Fed Chairman Powell’s hearings in both chambers of Congress (Tuesday / Wednesday) will be attracting great interest,” said Elisabet Kopelman, U.S. economist at SEB.
“The fact that the most recent rise in long bond yields has been driven by higher real interest rates and not just inflation expectations increases the probability of a dovish message.”
European Central Bank President Christine Lagarde is also expected to sound dovish in a speech later Monday.
Yields on 10-year Treasury notes have already reached 1.38%, breaking the psychological 1.30% level and bringing the rise for the year so far to a steep 43 basis points.
Analysts at BofA noted 30-year bonds had returned -9.4% in the year to date, the worst start since 2013.
“Real assets are outperforming financial assets big in ’21 as cyclical, political, secular trends say higher inflation,” the analysts said in a note. “Surging commodities, energy laggards in vogue, materials in secular breakouts.”
Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan went flat, after slipping from a record top last week as the jump in U.S. bond yields unsettled investors.
Japan’s Nikkei recouped 0.8% and South Korea 0.1%, but Chinese blue chips lost 1.4%.
A COPPER-PLATED RECOVERY
One of the stars has been copper, a key component of renewable technology, which shot up 7.7% last week to a nine-year peak. The broader LMEX base metal index climbed 5.5% on the week.
Oil prices have gone along for the ride, aided by tightening supplies and freezing weather, giving Brent gains of 22% for the year so far. [O/R]
On Monday, Brent crude futures were up 0.7% at $63.33 a barrel. U.S. crude added 0.7% to $59.65.
All of that has been a boon for commodity-linked currencies, with the Canadian, Australian and New Zealand dollars all higher for the year so far.
Sterling reached a three-year top at $1.4050, aided by one of the fastest vaccine rollouts in the world. British Prime Minister Boris Johnson is due to outline a path from COVID-19 lockdowns on Monday.
The U.S. dollar index has been relatively range-bound, with downward pressure from the country’s expanding twin deficits balanced by higher bond yields. The index was last at 90.342, not far from where it started the year at 90.260.
Rising Treasury yields has helped the dollar gain against the yen to 105.60, given the Bank of Japan is actively restraining yields at home.
The euro was steady at $1.2104, corralled between support at $1.2021 and resistance around $1.2169.
One commodity not doing so well is gold, partly due to rising bond yields and partly as investors question if crypto currencies might be a better hedge against inflation. [GOL/]
Gold stood at $1,793 an ounce, having started the year at $1,896. Bitcoin was off 3.3% on Monday at $55,535, but started the year at $32,216.
(Reporting by Ritvik Carvalho; additional reporting by Wayne Cole in Sydney; editing by Larry King)
Sterling steadies around $1.40, long positions at one-year high
LONDON (Reuters) – The pound hit a new three-year high of $1.4050 in early London trading on Monday, before stabilising around the $1.40 level, as bullish investors bet on the UK’s vaccination rollout bringing about an economic recovery.
Sterling rose to its highest levels since April 2018 when it crossed $1.40 on Friday, having risen 2.4% so far in 2021.
Analysts attributed the recent strengthening to the UK’s relative success in providing COVID-19 vaccinations, which is expected to help Britain’s economy rebound from its biggest contraction in 300 years.
Relief that a no-deal Brexit was avoided at the end of 2020 is also supporting the pound, as is a lessening of fears that the Bank of England could introduce negative interest rates.
Speculators added to their net long position for the third week running in the week to Feb. 16, CFTC positioning data showed. The market is at its most bullish in one year.
At 0839 GMT, the pound was at $1.3992, down 0.1% on the day. Versus the euro, it was up around 0.2% at 86.42 pence per euro, having touched a one-year high earlier in the session EURGBP=D3>.
“The move higher in cable this year has been primarily driven by pound strength rather than US dollar weakness,” wrote MUFG currency analyst Lee Hardman in a note to clients.
“If the highs from April 2018 are taken out it will encourage expectations that the pound is adjusting to a new higher equilibrium now that Brexit risks have diminished,” he said. “Whereas if those highs remain in place, market participants may then start to question whether recent pound strength is overshooting and thereby increasing the risk of a correction lower.”
British Prime Minister Boris Johnson will set out a plan on Monday to release the UK from its third national lockdown.
Some 17.6 million people, over a quarter of the 67 million population, have now received a first dose of a COVID-19 vaccine. The UK is behind only Israel and the United Arab Emirates in vaccines per head of population.
The yield on British government bonds jumped on Monday, boosted by the prospect of heavy U.S. fiscal stimulus and the UK economy reopening.
“Markets are still adjusting to the fact that the Bank of England is unlikely to implement negative rates for now, leading to a narrowing of the US-UK 10-year yield differential,” UBS strategists wrote in a note to clients.
(Reporting by Elizabeth Howcroft; Editing by Bernadette Baum)
FTSE 100 falls as inflation concerns weigh
(Reuters) – London’s FTSE 100 fell on Monday as higher commodity prices sparked fears of a spike in inflation, while investors awaited Prime Minister Boris Johnson’s plan for a phased easing of business restrictions.
The blue-chip FTSE 100 fell 0.6%, led by declines in consumer staples and industrials stocks.
Oil heavyweights BP and Royal Dutch Shell dipped 0.1% and 0.3%, respectively, despite higher crude prices. [O/R]
Johnson will plot a path out of COVID-19 lockdown on Monday in an effort to gradually reopen the battered $3 trillion economy, aided by one of the fastest vaccine rollouts in the world.
The mid-cap index fell 0.3%, led by declines in financials and industrials stocks.
British Airways-owner IAG rose 1.1% after it said it raised total liquidity by 2.45 billion pounds ($3.4 billion), reaching final agreement for a 2-billion-pound loan, and through a deal to defer 450 million pounds of pension deficit contributions.
Pub operator Mitchells & Butlers shed 0.5% as it reported a plunge in sales due to all its sites having been forced shut under the latest lockdown.
(Reporting by Shivani Kumaresan in Bengaluru; editing by Uttaresh.V)
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