Alibaba Group Holding Ltd., China’s online retail leader, filed yesterday for what could become the largest initial public offering ever in the U.S. Throughout the last 15 years, Alibaba has become a massive online retailer offering users everything from food and beverages to furniture and textiles. In addition to online products, Alibaba offers its own cloud computing platform and processes billions of dollars in mobile payments via its system Alipay.

Alibaba was founded by Jack Ma, a 49 year old former English teacher. In 1995, during a trip to Seattle, Ma used the Internet to search for “beer” and “China” and found no results. His response: create a website where more information about Chinese companies would exist. China Pages, one of the first Chinese Internet companies, was then started.

It was this chance encounter where the nonexistence of a Chinese Internet market led Ma to create Alibaba Group four years later.

WHAT IS ALIBABA?

Alibaba, a company that started selling only a few dozen items, is projected to be worth approximately $168 billion, putting the company in the same group as other major corporations like Facebook and IBM.

In addition to its parent website Alibaba.com, Alibaba also owns two subsidiaries: Taobao, an online marketplace and Tmall, an upscale version with luxury brands.

Today Alibaba is China’s, and possibly the world’s, largest online retail company. Alibaba announced that it would raise $1 billion but analysis project the company will raise $20 billion, surpassing Facebook Inc.’s record of $16 billion two years ago. With the help of Yahoo, one of the company’s largest shareholders, Alibaba will likely reach its fundraising standard. Yahoo plans to sell 22.6% of its stake in the company, approximately 208 million shares of Alibaba stock. Other shareholders such as SoftBank Corp., will retain ownership of over 30% of Alibaba shares.

LETTER TO EMPLOYEES

Minutes before the initial public offering, Ma sent an email to Alibaba employees informing them of the company’s decision to go public. The email covered the potential hardships Alibaba can face after going public and Ma’s beliefs of why the company has been as successful as it has.

Ma attributed the company’s success to the era of the Internet and hard workers who stuck to the company’s mission of “making sure there’s no difficulty to do business in the world” and “customer first.”

In his email, Ma urged his employees to handle their wealth associated with the public offering “properly.” Ma asked his employees to repay their communities and make charitable contributions. “We must also adhere to the principle of ‘live earnestly, work happily…”

VALUATION

In 1999, when Alibaba first entered the virtual marketplace, the company only sold a few dozen items online. Since then, the company has exploded in valuation.

In 2005, when Yahoo! Inc. first acquired a 40% stake in the company, Alibaba was valued at $2.5 billion dollars. Six years later, in 2011, Silver Lake Management LLC., and DST Global bought their way into the company at a valuation of $153 billion. Just last month, a survey of analysts valued the company at approximately $168 billion, raising another 10% in 3 years.

SoftBank’s President Masayoshi Son invested $20 million into Alibaba 14 years ago. Today his modest investment has grown into a whopping $58 Billion.

According to information released by Yahoo, Alibaba valued at 21 times sales since last year. Compare that to Amazon’s increase of 1.8 times, Ebay Inc.’s increase of 4 times, and Google Inc.’s increase of 5.8 times.

THE ROAD AHEAD

After Tuesday’s filing with the Securities and Exchange Commission (SEC), Alibaba has now begun a several month process to become a publicly traded company. The company will now enter meetings with active and potential investors, revise existing documents and then set an initial price per share. Alibaba and its shareholders must then decide whether the company will be listed on the New York Stock Exchange or Nasdaq Stock Market.

Alibaba is continuing to move in a positive direction. The company intends to continue investing and acquiring companies in China and abroad.

In 2010, Alibaba transferred its ownership in Alipay, the mobile payment system, to a company controlled by Ma. Alibaba now hopes to regain its ownership stake in the company.

Last month, the company acquired AutoNavi Holdings Ltd., China’s most popular mobile mapping application. Further, Alibaba has plans to invest approximately $700 million in Intime Retail Group Co., a department store and supermarket in Beijing.

  

 

Topics: Alibaba, IPO, SEC, Yahoo