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 th , 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 Journal.
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 to date.
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 ( BIDU ), Sina Cp. ( SINA ), and Sohu.com ( SOHU ) 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. ( YHOO ), 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, unlike YHOO.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.