After a year of planning with the USA, Alibaba gave an initial public offering (IPO) of its shares on the stock market on 18th at $99 and opening the next day at $92.70. Raising such an amount has made Alibaba bigger than Facebook as a technology listing. Those who bought at $68 couldn’t have made a better gambit. There was just one question: what actually is Alibaba?
Based in China, the Alibaba Group is a website which functions as a trading website, providing both business-to-business interaction as well as online retail and payment services. To the first time user Alibaba is similar to Amazon in many ways. It began as an online marketplace for businesses to trade in but quickly developed to involve consumer sales and online payments as well. A quick flick through the considerable number of items on offer showed that Alibaba sell everything from beer to bulldozers and from lithium carbonate to lingerie (that’s the Christmas shopping done then). The format is rather similar to online retailers such as Amazon but despite the wide-range of products, there’s not a hugely significant overlap. Amazon appears to have the edge on DVDs, books, music and the like, whereas Alibaba possess nearly everything else.
The pitch of Alibaba is quite strong. It has been sold to investors as a means of tapping into the vast and growing Chinese middle-class as the taste for consumerism increases. As merely a tool to make connections and link buyers and sellers, the costs of Alibaba are low and the lasting competition in China non-existent as far as online retailers goes. Its lack of prominence in the Western sphere seems to spell positive as something lucrative and new.
However, the natural flipside is that whilst having a strong opening, there is a slight hesitancy now in that investors appear to be waiting what the next step is for Alibaba. Those who bought straight away have made 38% gains. This mainly includes hedge funds and other institutional investors. All those who have bought at a different time have made negligible gains. Buyers at $92.70 have been up by about 1%.
Despite its selling points, its flash increase in price means that retail investors are now hesitant to partake in buying, and may wish to play safe until Alibaba proves itself as stable in the long-term and may indeed never receive notable benefit from Alibaba’s flotation, this being what ‘represents the bastion of elitism’, according to Barry Schneider, the CEO at Loyal3.
Alibaba is worth taking note of however. For one thing, one of its founders, Jack Ma, is now the richest man in China. And for another thing, as well as replicating many of the basic functions of Amazon, it is comparable with eBay in its user-to-user interface with Alibaba serving purely as a mediator, and may even be comparable to ApplePay before it’s even started. Alipay’s online payment accounts for half of all online payment within China, whilst ApplePay is set to be a potentially revolutionary form of online payment in the coming year.
Alibaba is new and exciting and has a great deal of potential. Whether it will prove to have lasting financial success remains to be seen and the general investor is right to hold his cards to his chest. But it is certainly a compelling business which may make for a compelling future in the stock market. September.