Alibaba IPO Gives Investors A Ticket Into Chinese E-Commerce

Alibaba’s much anticipated initial public offering, expected to be one of the largest in history, will give many investors an opportunity to invest in the growing Chinese e-commerce market.

Alibaba, which holds an 80% share in the Chinese e-commerce market, is expected to raise $1 billion, but analysts expect the company’s haul to be much bigger, potentially $20 billion. The IPO will likely surpass that of Facebook, which raised $16.4 billion in 2012, and could near Visa’s 2008 IPO of about $17.9 billion.

The retailer dominates online commerce in China through its flagship Web site Alibaba.com and a variety of subsidiaries, including Taobao, its online marketplace, and Tmall, an upscale version of Taobao for luxury brands. The company also runs a payment system called Alipay, similar to PayPal, that processed $519 billion in payments in the nine months ended in December 2013.

While online shopping represented just under eight percent of Chinese consumption in 2012, it’s expected to grow at an annual rate of 27% through 2016.   As the largest e-commerce player, Alibaba will be one to watch for investors as Internet use skyrockets in China.  In 2013, about 618 million or 46 percent of the country’s population used the internet.  Alibaba said that number is expected to rise to 790 million by 2016.

Alibaba may have to prove itself, however, after a number U.S.-traded Chinese Internet stocks, including ChinaCast Education and FAB Universal,   took a dive following a string of accounting scandals and worries about adequate disclosure.  Baidu, China’s top search engine, was pressured by the U.S. Securities and Exchange Commission in December to make additional disclosures about its corporate structure, citing the potential for foreign owners to lose control.

Still, the crack down by the SEC has not stopped other Chinese companies from filing IPOs.  In January, JD.com, China’s second largest e-commerce marketplace, filed for a $1.5 billion IPO and smaller e-commerce sites dangdang.com and Yihaodian could follow suit.

Alibaba, which valued itself at $109 billion in April, is set to launch series of meetings with investors ahead of the listing, expected late in the summer, according to reports.  At the end of 2013, Alibaba said it had 231 million active monthly buyers, up 44% from a year earlier. For the nine months ended in December, Alibaba had a net income of $2.9 billion on revenue of $6.5 billion.