At press time, the online B2B portal was expected to raise US$1.5 million, making it China’s largest listed internet company to date.
Already, a glut of investors have committed to buying almost half of the $859 million worth of shares on offer. But industry professionals can be forgiven for being unfamiliar with the company, beyond its ubiquitous orange-and-white taxi transportation ads in Hong Kong. That’s because Alibaba.com conducts online B2B transactions, meaning it links Chinese suppliers to international buyers solely through the internet.
Already, a glut of investors have committed to buying almost half of the $859 million worth of shares on offer. But industry professionals can be forgiven for being unfamiliar with the company, beyond its ubiquitous orange-and-white taxi transportation ads in Hong Kong. That’s because Alibaba.com conducts online B2B transactions, meaning it links Chinese suppliers to international buyers solely through the internet.
Its profits derive from advertising, not transaction charges, illustrating the might of China’s internet mushroom: Alibaba.com gained an 87 per cent margin last year, 105 per cent revenue in 2005 and 85 per cent in 2006.
Furthermore, many appear to share the top-down valuation justified by Edward Yu, CEO of Analysis International, in a recent Bloomberg article: “More and more Chinese companies are beginning to see the internet as a way to help grow their businesses, which will in turn help make Alibaba’s services more popular.”
And then there’s Jack Ma, Alibaba.com’s flamboyant chairman, whose rockstar status is nearly on par with that of Li Ka Shing. But as he prepares for his company’s trading debut, several China-based analysts are advising caution over Alibaba.com’s lucrative listing.
For instance Paul Woodward, CEO of BSG Asia, was surprised to hear the Financial Times describe Alibaba.com’s price tag as “undemanding”.
“Alibaba.com is trying to position itself as a pure internet company, like Baidu and Sohu,” says Woodward. “If you look at it in the same context, it doesn’t look as aggressive. But for a B2B media company, it will require very substantial growth.”
How much? “US$160 million in profits next year.” he says.
Woodward compares this figure to the $170 million in revenue which Global Sources made last year. Global Sources is Aliba-ba.com’s biggest mainland competitor, but with one crucial distinction: it works offline as well.
“Essentially, Alibaba and companies like Global Sources are making China accessible to SMBs,” says David Wolf, CEO of Wolf Media Asia. “The long-term problem, of course, is that the need for such middlemen will decline in value and importance as more US executives become comfortable with dealing in China.”
To Wolf, the reason behind the dotcom-like excitement involves a combination of Alibaba.com’s “stellar” - in his words - corporate communications team, the mainland’s underdeveloped standards of accountable transparency and some serious buzz.
“Alibaba is generating revenue, but most analysts are doing a top-down valuation,” says a former investment banker. “They apparently forget that during the dotcom era, most companies valued that way went bankrupt.”
