China’s Online Goliaths Prepare Public Offerings in U.S.

MARCH 14, 2014, 1:42 PM  1 Comments

China’s Online Goliaths Prepare Public Offerings in U.S.

By MICHAEL J. DE LA MERCED

Updated, 7:38 p.m. | The Chinese Internet industry is coming of age, as some of its biggest players prepare to start new chapters as publicly traded companies — in the United States.

The biggest of them all, the e-commerce behemoth Alibaba Group, is aiming to file for an initial public offering in New York as soon as next month, people briefed on the matter said on Friday. Several analysts value Alibaba at north of $130 billion, and many predict that its I.P.O. may raise more than the $16 billion that Facebook fetched in its market debut nearly two years ago.

And Weibo, a major Chinese microblogging company seen as that country’s answer to Twitter, filed on Friday for its own stock sale.

Should the two companies move forward with their plans, they could form the second wave of Chinese Internet I.P.O.s, nearly a decade after Tencent and the search engine Baidu went public.

Earlier this year, JD.com, Alibaba’s principal rival in the e-commerce market in China, filed for its own stock offering in the United States.

Unlike a wave of Chinese companies that sought American stock listings several years ago — some of which have since collapsed in the face of accounting scandals — these are Goliaths.

The latest crop of companies has also chosen to file in the United States, which has enjoyed an abundance of I.P.O.s over the last few years. A swell of American Internet start-ups like Dropbox and Box are primed to join the parade of newly public companies in the next year or two, following in the footsteps of Facebook and Twitter.

Largely unchallenged by foreign competitors, the Chinese companies have come to dominate what is seen as the next frontier of the Internet. E-commerce has become especially important, as Chinese consumers increasingly flock to online marketplaces rather than traditional physical retailers.

And these companies continue to expand into new businesses as they keep up with the migration of online users to mobile devices. (Alibaba, for instance, owns a roughly 19 percent stake in Weibo and has the right to raise that to 30 percent. )

Despite being confined mainly to Chinese-speaking users, Weibo has become one of the most talked-about social networks in the world. The company claimed 129.1 million monthly active users as of year-end, compared with Twitter’s 241 million.

Alibaba’s investment in Weibo last year valued the messaging service at about $3.3 billion. Though its prospectus on Friday listed a fund-raising target of $500 million, the company may seek to raise significantly more.

But by far the most anticipated offering on Wall Street is Alibaba’s. Virtually every major investment bank has journeyed to Hong Kong to make its pitch to Alibaba’s management team, particularly its founder, Jack Ma, and its executive vice chairman, Joseph Tsai. Executives like Jamie Dimon of JPMorgan Chasehave dined with Mr. Ma with an aim to secure a coveted role on the forthcoming stock sale.

While the company has yet to formally hire underwriters, two longtime advisers,Credit Suisse and Morgan Stanley, are expected to play big roles in the offering, the people briefed on the matter said.

The company has not yet decided whether it will list itself on the New York Stock Exchange or the Nasdaq market, though both markets have pitched hard to win the listing.

Alibaba’s decision to list in the United States reflects its decision to snub the Hong Kong Stock Exchange, which has resisted overtures to bless the company’s partnership structure. The scheme is meant to help a group of insiders maintain control over the board.

But the Hong Kong exchange, which has traditionally prohibited corporate structures that let minority shareholders preserve control of companies, refused to make an exception. While Alibaba may still change its mind, the company currently plans to seek a listing in New York, two of the people briefed on the matter said.

A spokeswoman for Alibaba said that the company had not yet settled on a timetable, venue or underwriters for its offering. Representatives for Morgan Stanley and Credit Suisse declined to comment.

Founded in 1999 as a marketplace for businesses to trade goods like circuit breakers and hydraulic cylinders with other companies, Alibaba has become a behemoth that is part eBay, part Google and part PayPal. Its sales volume in 2012, $160 billion, was nearly twice that of Amazon.com, according to RetailNet Group.

Over the last several years, the company has posted stunning growth — fast enough that investors grew concerned when in January Alibaba disclosed only a 51 percent gain in revenue for its third quarter, to $1.8 billion.

Among the biggest beneficiaries of Alibaba’s success has been Yahoo, whichmaintains a 24 percent stake in the Chinese company.

Alibaba, however, does face pressure from rivals like Tencent. Earlier this week, Tencent said that it planned to buy a 15 percent stake in JD.com, strengthening Alibaba’s main rival in online commerce.

Nonetheless, some analysts say they believe that the strength of Alibaba’s platforms will be difficult to overcome for now.

“They have such a strong position that it would be hard to erode that market share in the short term,” Zia Daniell Wigder, an analyst with Forrester Research, said.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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