Analysts have been speculating on Alibaba’s IPO from the month of May when the Chinese e-commerce giant filed its registration documents to go public in the U.S. Several investment honchos have quoted that this might be the biggest IPO in American history. While the average U.S. consumer might not be aware of Alibaba’s popularity in China, its F-1 fling does give clarity on the fact that 80% of the Chinese e-commerce transactions are through this Chinese portal. Analysts are expecting Alibaba to rank in the list of top technological companies, next to IBM (IBM, Financial) and Oracle (ORCL, Financial) soon after the initial public offering. In a Bloomberg report some analysts have opined that the company is valued nearly $170 billion while some expect the valuation to cross $250 billion, once the Chinese firm gets listed on the U.S. stock exchange. Let’s check the hot news on the IPO which has come into the limelight and indicates the success rate of the IPO after it gets priced on September 18.
Alibaba to make the special debut
When Alibaba debuts on the New York Stock Exchange under the ticker symbol BABA, it could be the largest IPO as the Hangzhou-based company declared plans of raising up to $21 billion through this offering topping Facebook’s (FB, Financial) $16 billion IPO in 2012.
The road show for the upcoming IPO is in full swing, and the shares are reportedly proving to be a huge hit for institutional investors. Big fund managers are anticipating an overnight windfall and are requesting far more shares for their portfolio than Alibaba is selling at a price of somewhat between $60 and $66 a share. The exact number of shares being offered through the IPO would be determined on September 18, on the eve of the much-awaited IPO.
Wall Street is expecting that Alibaba stock will create a pop on the first day of trading and the pop is one of Wall Street’s prized events. The pop is the hallmark of a successful IPO and that is what the expectation of most analysts is.
What is chalked in the prospectus
The prospectus was released on September 5, and it has the Alibaba plan of action. The Chinese online and mobile commerce colossus would be offering a maximum of 368 million shares for sale through six principal underwriters – Credit Suisse (CS, Financial), Morgan Stanley (MS, Financial), JPMorgan Chase (JPM, Financial), Goldman Sachs (GS, Financial), Citigroup (C, Financial), and Deutsche Bank (DB, Financial). Now, if the shares are sold at the top price of $66 per share, then the IPO could raise more than $24 billion, placing Alibaba’s market capitalization at $163 billion.
The investment banks are garnering nearly $350 million as fees, which comprises close to 10% of the IPO proceeds; that is well below the norm in most IPOs.
Valuation by investment bankers
Bank analysts working on this expected IPO have estimated its value to be around 24 times the future earnings. This appears to be at a discount to the Chinese internet rival Tencent Holdings (TCEHY, Financial) and ever at a bigger discount to Facebook- as indicated in the chart above compiled by FactSet. This discount might translate to a neat profit for investors who enter into the deal, as many investors and analysts believe that Alibaba would command a valuation at par with the peers once it starts trading publicly from September 19 on the NYSE.
With respect to profits for Alibaba, bank analysts have forecast that the bottom line for the company could grow to nearly $7 billion by 2015.
Final conclusion
The blockbuster IPO’s pricing on September 18 will give more information on how successful the IPO could be soon after the shares start trading the following day on the NYSE. Though there is a lot of data in hand with respect to Alibaba’s IPO, it seems to be a Wall Street fable similar to the Arabian nights –Â the fable that brought us the first Alibaba. Let’s stay tuned and watch closely.
