Some investors claim that Alibaba is the most anticipated IPO in
history. This could be true, and there is certainly a lot of buzz
concerning how one of the largest filings for an IPO in the US will
fare. Alibaba is pushing hard to try to keep up with all the hype
by aiming for an IPO shortly after Labor Day, which is historically
a solid time for IPOs.
Alibaba originally wanted to debut on US markets on August 8
, but was unable to keep with the commitment, and there were
concerns that volume would be too low in this slow summer month.
For most institutional investors and those who are patient, this is
not too much of a big deal, but for individual or retail investors
who can't seem to wait any longer, the extra month could be a
painful wait to get a slice of the Chinese e-commerce giant. This
is especially true given that there is lots of negative talk
regarding Alibaba's offering as of late.
Would patience be a virtue in this situation? Let's find out and
let us also consider some of the other key aspects of this
important initial public offering, and how it may influence the
market in the weeks ahead:
Alibaba Forces Other IPO's to Hold Out
Smaller companies may seek to push back their IPO dates so as not
to collide with Alibaba's IPO. Historically, firms have always
changed public offering dates after assessing the market situation,
and their readiness. Alibaba's IPO is likely to be the biggest
ever, raising as much as $20 billion, according to the Wall Street
Alibaba has agreed with many large US banks, such as Credit Suisse
Group, JP Morgan Chase, Citigroup, Morgan Stanley, Goldman Sachs,
Deutsche Bank AG, to manage its offering. This should exemplify
just how challenging handling the offering will be. Usually a
couple of banks handle IPO's but Alibaba has contracted a lot more.
Furthermore, this year has been very busy as more than $46 billion
have been raised from around 202 IPOs per the Wall Street Journal.
Wayfair, headquartered in Boston, Massachusetts, and Zalando,
headquartered in Berlin, Germany, are two anticipated e-commerce
IPO's in Q4. According to UBS AG, investors will have many options
to invest in, even though Zalando is planning to file in Frankfurt,
it will still offer itself for US investors too.
Banks Face a Challenge
Many bankers are worried about how they may not be able to cope
with the sheer volume of traded Alibaba shares, once the company
goes public in mid-September. However, there are some
concerns that volume will trail off after the intial boom, so banks
might be concerned about the price of Alibaba in the opening weeks
of trading. We saw how Facebook's stock (FB) crumbled during its
first few months after it initial public offering back in 2012,
which raised an estimated $16 billion, the largest technology IPO
Alibaba faces a few long term and short term challenges. The short
term challenge is to introduce itself to American investors and the
general public in the US. Alibaba operates mainly in China, and
caters to the Chinese market and its needs.
The Wall Street Journal has also stated that Alibaba will have to
answer questions from regulators and investors regarding its
distinct "three-legged" structure, and how it is going to
"structure" its assets, which is not going to be easy considering
China's foreign ownership regulations.
The other challenge is the somewhat bizarre structure of Alibaba
and how it is a Chinese company that is not treating the US as a
permanent home. When investors buy Alibaba stock, they will be a
stakeholder in a Cayman Islands entity, instead of actually owning
part of the Chinese company's assets; however, they will still be
entitled to all interest, gains, losses, and dividends.
This is something US investors need to think about, as it is often
times overlooked, and it is also worth to note that this method,
variable interest entity, is already in use by Baidu (
), Sina Cp. (
), and Sohu.com (
) and it isn't having an impact at all,
according to MarketWatch
Accounting Issues in Focus
Very recently, there have also been accounting discrepancies
regarding Alibaba's film production arm, Alibaba Pictures, and
Deloitte, Alibaba Pictures' auditor. This has caused Alibaba to
delay its results, until further investigation is finished. Many
say that despite these "accounting irregularities," investors will
not be shunned unless the irregularities become too large. Alibaba
will also have to make sure that it is satisfying two largest
stakeholders, Yahoo, Inc. (
), and Softbank Corp.
The Not-So Secret Backdoors Close
By now, most investors looking forward to jump on the bandwagon
when Alibaba enlists have figured that YHOO owns approximately
22.5% of Alibaba. It is also true that Japan's Softbank Corporation
owns a large stake of Alibaba, around 37%, but most US investors
will have a hard time getting hold of some shares of Softbank,
Yahoo looks forward to reap the profits that are likely to take
place when Alibaba is available to trade, but many shrewd investors
have already started stocking up on YHOO shares, in hopes of making
gains and owning 22.5% of Alibaba indirectly.
YHOO currently has a Zacks Rank #5 (Strong Sell), because we
believe there are better buying opportunities or so-called entry
points, before Alibaba takes off. What happens then for YHOO
stakeholders is something only time can tell.
It is unquestionable that Alibaba, which is rumored to debut with a
"BABA" ticker, will have a huge impact on US markets and investors
will seek to purchase their own stake in Alibaba, if they don't
already have shares in YHOO.
Investors will most likely be heavily rewarded during the first
week, though time will tell how Alibaba's stock sails. We certainly
hope it won't flop like FB's stock when Facebook made its debut,
though much like with that company, it will be a very closely
watched and anticipated IPO.
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