Alibaba and the IPO Thieves

Remember the story of Ali Baba and the 40 Thieves, from the famous book of One Thousand and One Nights? This is no story telling here....i am actually referring to the popular China's B2B e-commerce website, Alibaba.com.

I first came across Alibaba.com towards the end of 2006, having known very little about this company. I then realized that they are the biggest B2B e-commerce trading company in China, with the forecast to profit more than US$80million this year alone! What is great about this company is that it serves as the critical connecting bridge between global traders and the Chinese traders made up of mostly small and mid-sized businesses.

Alibaba.com is going for listing and it has chosen Hong Kong for listing. The IPO has attracted great interest among the retail investors, as they queued frantically to get hold of the prospectus and application form. The reason for the enormous interest is simple.....For those who have witnessed the dizzying performance of Google's and Baidu's share prices since listing, it's an opportunity that no one should miss out! Even institutional investors are not missing out, as shown by the over 50 times oversubscription rate of the institutional tranche! On the other hand, Yahoo! has also pledged to purchase 10% of the available shares from Alibaba, which further ignites the excitement among investors!

Alibaba possesses a great growth story, judging by China's huge population and the currently low internet penetration rate. In addition, the industry is potentially lucrative if more of China's 32 million small and medium-sized enterprises (SMEs) can be persuaded to use the internet. It is believed that trade among Chinese SMEs reached $532 billion in 2007, and will grow by about 15 percent per year over the next five years!

The IPO price is anywhere between HK$12-HK$13.5 per share. The range was in fact revised from the initial HK$10-HK$12 a piece! At the higher point of the scale, this would mean its stock would be listed at 106 times multiple of 2007 earnings, a record price for global IPO listing! By contrast, Google shares were priced at a P/E of 90 in its IPO and currently fetch a 50 P/E multiple. Sounds like too much an investor is paying for but given the current frenzy and the great future prospects, i believe investors will still ride the waves.

No doubt one can potentially gain substantially by the direct route, i.e, via IPO, but there's no guarantee one would get it. There lies another potential, via the indirect route, i.e, watch out for Yahoo's share price, given its shareholding in Alibaba. If Alibaba shares do well, it may also trigger a rerating of Yahoo! Shares!

The stock is scheduled for listing on Nov 6 and is expected to raise US$1.3 billion!