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Alibaba Raises Target Price for IPO to $66-$68 Range - Stocks in the News

Alibaba plans to raise the range of its initial public offering to $66 to $68 a share. The Chinese e-commerce giant originally projected its price range from $60-$66. According to a regulatory filing on Monday, the increase in price range pushed the IPO value to as much as $21.8 billion.

That would value the e-commerce giant around $165 billion given median price valuation. Alibaba could set a new world record if underwriters exercise an option to sell additional sales to meet demand, pushing it as high as $24.3 billion and overtaking Agricultural Bank of China's $22.1 billion in 2010.

Given the top end of the targeted price range, the company would then overtake Amazon.com ( AMZN ) which has a market capitalization of about $150 billion. The increased price range comes as potential investors have shown strong demand for the Chinese e-commerce company's shares.

As the second week of Alibaba's road show began in Hong Kong on Monday, Mr. Ma told several hundred potential investors at the Ritz-Carlton hotel that the company was being careful not to set valuations too high or too low.

Learning From The Past

Alibaba is arguably worried about over valuation such Facebook's IPO debut on May 18, 2012. Facebook bumped up its targeted price range due to strong investor demand that left little upside potential to investors who did not participate in the stock offering.

In its first year of trading, Facebook ( FB ) yielded a net loss of about 28% since its IPO. Granted, Facebook stock has yielded about 95% in the past two years and has been doing well lately, but Alibaba does not want to repeat the same debacle that FB made in its IPO.

Easy Money

If Alibaba wanted to ensure strong demand, all they would have to do is become listed on the NASDAQ. This would allow Alibaba to be included in the Nasdaq 100 by the end of the year and the funds which track the index would have had to buy.

However, Alibaba was probably worried about how Nasdaq will be able to handle the $21 billion IPO after the exchange had a rough start with FB's IPO in 2012. Nasdaq systems buckled under the tremendous volume of order on the first day of trading in Facebook's shares in 2012, leading to an hour of delay.

Limited Choice

Besides the Nasdaq-100 index, Alibaba does not qualify to be on many of the world's major indices either since it is registered in the Cayman Islands. The S&P 500 index which has a market capitalization of $18.6 trillion only lists U.S. companies.

The Chinese firm is not eligible to be part of the biggest MSCI or FTSE indices for other reasons, although MSCI is looking at changing its index rules in a way that could put Alibaba on a major index.

Bottom Line

There is no doubt the Alibaba is a juggernaut in the e-commerce sector dating back to the early 2000's when it defeated the then-dominant e-commerce company eBay ( EBAY ) in taking control over China's e-commerce business.

While higher demand for the stock causing a raised price range, this creates more pressure on Alibaba to use all of that extra capital to grow its business worldwide. Investors should not only see how the raised price range trades on Friday, but to also see what other equities move inversely to the high demand in Alibaba.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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