ALIBABA AND THE FORTY THIEVES, OR ALIBABA INVESTORS LIVE HAPPILY EVER AFTER? (by William Meyer)

Alibaba is a Chinese internet company about to list on the U.S. stock market in the next couple of days.
It will be the largest IPO (initial public offering) ever at a staggering value of 21 billion U.S. Dollars. The share price, touted at between $60 and $66 would value the company at $160 billion – a bit shy of Facebook’s $200 billion value.
Alibaba’s interests include business to business online web portals, payments services, search engines and cloud computing services. According to Wikipedia in 2012 two of Alibaba’s portals alone handled $170 billion in sales, more than competitors eBay and Amazon.com combined.

Already in March 2013 the Economist magazine estimated the company to have a value of between $55 billion and $120 billion (wow – that’s quite a spread!). Alibaba’s consumer to consumer portal Taobao, similar to eBay, features nearly a billion products and is one of the 20 most visited websites globally. Alibaba Group sites account for over 60% of all the parcels delivered in China.

And it is hard to believe that Alipay, an online payment service, accounts for roughly half of all online payment transactions within China. The vast majority of these payments occur using Alibaba services.
As the BBC points out everything in China is always immense, but this is immense even by China standards. China is now the biggest online market in the world. It has 600 million internet users – twice as many as the US – and half of these Chinese users already shop online. China is also the world’s biggest smartphone market, Chinese shoppers are going mobile and Alibaba is surfing a giant wave.

In a previous life, Jack Ma, Alibaba’s founder flunked exams, barely scraped into a teaching college and finally began teaching. Fifteen years ago he quit and started Alibaba.
He realised immediately that the Chinese would shop online only if they had the tools to do so conveniently, safely and cheaply and he began building these systems. Alibaba provides a verification and payments system that protects buyers and sellers. Other businesses were added. Tmall is used by businesses which sell to the public and Taobao by the general public who sell to each other.

Most importantly Jack Ma has also managed Chinese politics expertly. He has convinced the Communist leaders that his business presents no threat to them. He once said : “we create value for shareholders and the shareholders don’t want us to oppose the government and go bankrupt” and “Alibaba should be in love with the government but never marry it”.
Investors need to be cautious. The timing of the IPO is risky, and remember the Facebook IPO – an unmitigated disaster. The market is also trading at multi-year highs.
An excellent way to jump on the Alibaba train is to buy Yahoo shares. Yahoo owns 22% of Alibaba and these shares are worth more than Yahoo’s entire market valuation. Investors are getting the rest of Yahoo for free and the Alibaba share price is now the main driver of Yahoo’s share price.

This is exactly the same situation we have in South Africa with Naspers. Naspers’ biggest asset is its holding in Tencent. Tencent is the fourth largest internet company in the world.
Investors must have growth shares in their portfolios – it is the only game in town but some view this IPO as a giant alarm bell for the market – let’s be careful out there!

William Meyer Cell: 079 624 4031 fam@mweb.co.za