SAN FRANCISCO: Alibaba gave investors a closer look at the scale and growth of the Chinese e-commerce juggernaut in an initial public offering (IPO) prospectus filed on Tuesday, the first step in what could be the largest technology debut in history.

Alibaba Group Holding Ltd, which powers 80 per cent of all online commerce in the world’s second-largest economy, is expected to raise more than $15 billion, and could top the $16bn pulled in by Facebook Inc when it listed in 2012.

The bulk of the proceeds will go to Yahoo Inc — which bought a 40pc stake in Alibaba in 2005 for $1bn and which must sell more than a third of its current 22.6pc stake through the IPO.

While the Alibaba brand is less well known in the United States than Internet companies such as Amazon.com and Facebook, the Chinese company’s listing has stirred the most excitement in Silicon Valley and Wall Street since Facebook’s record IPO. Alibaba will become the largest Chinese corporation to list in the US — on either the New York Stock Exchange or the Nasdaq.

Alibaba will debut later this year in a market where high-flying tech stocks like Twitter and Amazon have fallen in recent weeks in a sell-off that has divided analysts and investors, reviving doubts about soaring tech valuations.

Still, estimates of Alibaba’s market value have soared in recent months, to even beyond $200bn, underscoring Wall Street’s eagerness to take a crack at a massive Chinese company with robust growth.

At least 102 years

Alibaba, founded 15 years ago in an apartment in Hangzhou and controlled by a 28-member partnership, boasts of building a company that will last “at least 102 years.” After the IPO, Alibaba said, the partnership will have the exclusive right to nominate a simple majority of the members of its board of directors.

Total revenue increased 62pc to 18.75bn yuan ($3.01bn) in October-December of 2013 from a year earlier, while net income more than doubled to 8.27bn yuan, according to the prospectus.

Some analysts say Alibaba’s rapid pace of revenue growth may be unsustainable.

By 2020, online retail sales in China will reach $420-$650bn, as much as the United States, Japanese, UK, German and French markets combined, according to a recent analysis by McKinsey Global Institute.

Mobile future

Alibaba said China’s mobile Internet arena, where it is battling Tencent Holdings for supremacy, is the next growth industry. China will have an estimated 750m mobile Internet users by 2017, according to data from iResearch.

Roughly one-fifth of all purchases in the last quarter of 2013 were made on mobile devices, up from 7.4pc a year earlier. But Alibaba added that for now these sales were less profitable than those made on its website.

Ownership and risks

Some analysts have pointed to a less-than-transparent decision-making process after Alibaba spun off fast-growing Alipay in 2010 — a move that caused consternation at major shareholders Yahoo and Japanese telecoms firm SoftBank Corp .

Alibaba’s prospectus also laid out a raft of regulatory risks it faces at home. The company stressed that Beijing could impose additional restrictions on the use of Alipay, the payment service that powers the majority of its online transactions.

Unlike many prominent US tech IPOs of recent years, Alibaba’s list of significant shareholders is short. By contrast, Facebook and Twitter each broke out shareholdings from more than a half dozen individual principal shareholders.

Fair value

Alibaba estimated its fair value as of this month could reach $50 per share, an increase of more than six times from the $8 a share value estimated in June 2011, according to the prospectus. This calculation helps determine employee compensation and does not necessarily represent a likely IPO price.

At the most recent fair value estimate, Yahoo’s stake in Alibaba is worth $26.2bn and SoftBank’s almost $40bn. Ma’s stake would be worth $10.3bn. The fair value estimate puts Alibaba’s size at $116.1bn, well below the $152bn average from 25 analysts in a Reuters survey.

Citigroup, Credit Suisse, Deutsche Bank , Goldman Sachs, J.P. Morgan, and Morgan Stanley will underwrite the Alibaba IPO.

Published in Dawn, July 15h, 2014