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Why a Chinese Company Is the Biggest IPO Ever In the US
An anonymous reader writes The Chinese e-commerce giant Alibaba has made headlines lately in US financial news. At the closing of its Initial Public Offering (IPO) on Friday, it had raised $21.8 billion on the New York Stock Exchange, larger even than Visa's ($17.9 billion), Facebook's ($16 billion), and General Motors ($15.8 billion) IPOs. Some critics do say that Alibaba's share price will plummet from its current value of $93.60 in the same way that Facebook's and Twitter's plummeted dramatically after initial offerings. Before we speculate, however, we should take note of what Alibaba is exactly. Beyond the likes of Amazon and eBay, Alibaba apparently links average consumers directly to manufacturers, which is handy for an economy ripe for change. Approximately half of Alibaba's shares "were sold to 25 investment firms", and "most of the shares went to US investors."
Alibaba is a kind, smart business person
Somehow I keep reading thief.
I know that this is a hard choice (especially since I heard Alibaba has soared by 38% in its first day) but please consider the following:
About 5 years ago I stopped investing in Chinese companies. Why? Because I didn't want to support even indirectly a regime that, without apology, oppressed Tibet and supported the despotic regime of North Korea. I hold them largely responsible for sacrificing millions of my long-separated brothers (yes, I'm ethnic Korean) through starvation and torture simply to keep a "buffer state" in between them and the "capitalist" (ha ha, what irony) South Korea and U.S.
My stance was only hardened by their support, for purely geopolitical/economic considerations (OIL), of Syria and Iran (and, I think Libya). They and Russia have kept those regimes propped up and have made the tragedies in the Middle East even worse (of course America started it but at least we know now that most of us were idiots to be led by one). That's not to mention the authoritarian and despotic regimes that the Chinese GOVERNMENT is supporting in Africa purely for their resources.
Look, I know the West (and especially the U.S.) have done a LOT of bad things but the Chinese government doesn't even make a pretense of things like human rights, even in their own country. As I've said, they've been willing to sacrifice millions for a modicum of security (they could've asked the U.S. and S. Korea if, in return for not letting the Kims return to North Korea from one of their trips to China, we would promise not to put American troops north of the 38th parallel. As if S. Korea would even want American troops on the peninsula once the threat was gone). Now, living in S.E. Asia, I see firsthand how the Chinese government with its growing power is throwing away treaties and agreements it has signed in order to bully the Vietnamese and Philippines with their ridiculous "cow tongue" shaped demarcation of the seas. They are returning to 19th century "gunboat" diplomacy in the 21 century world.
I fear that as China grows ever stronger, they will continue to discard previous commitments to peace and will literally force their will upon the world. Is that what you want to support? I'm a realist, and I love my gadgets and my improved standard of living brought on by the flood of low-cost Chinese products (often produced with stolen patents and technologies but that's another story) and I'm not quite ready to live without. However, when there's a choice, when you can purchase something that is identical (hopefully) in every way including price to another but one is made in China and one was made in Sweden(?), I hope you'll make the same choice I do.
If the Chinese government, not the U.S. government had the power the NSA has; would any of us have any protection at all? Think of what kind of world that would be to live in. (That's what 1.2 billion people ARE living in).
(If you're wondering why I'm advocating not buying/investing in China and hurting Chinese citizens as opposed to just their government, remember that the world boycotted South Africa during their Apartheid regime even though it undoubtedly hurt many whites and blacks who were good people. And it worked.)
The reason Alibaba will take over from Amazon and Ebay is simple. Two things.
First, scale. It moves more product than Amazon and Ebay COMBINED, and that's before even entering the US market. The network effect will dominate.
Second the vast majority of what Amazon and (especially!) Ebay sells is made in factories in China anyway. Alibaba will allow cheaper prices for the same products without having to go through the middlemen and let Ama/Eba skim off profits in the middle.
If i can buy a part directly from the manufacturer in China for $3.99, I'm not going to pay $11.99 for Amazon to deliver it to me or even $5.99 for an Ebay reseller.
Alibaba will have a price advantage on the other big players, and that's what'll matter in the end.
I sure wouldn't be wanting to hang onto Amazon or Ebay stock right now (assuming either have stock, sorry I don't keep track of things like that).
Right... So, people have stopped buying monitors from Dell simply because they can buy similar Korean monitors direct on eBay? No? Oh, right, because people like to have warranties and have the ability to get stuff replaced in a timely manner when it fails.
Also, you're wrong about Alibaba's business model today. They are the middle men between the manufacturer and the storefront. They do have an eBay style system, but it's used by independents, not Alibaba, to sell products. And yes, they also have a Paypal type service, but it would have to clear a large number of hurdles to become trusted in the US.
Alibaba is doing the IPO in the US because US exchanges will go along with the "sell majority of stock but retain complete control over operations" setup the Alibaba owners wanted to use.
Do what thou wilt shall be the whole of the Law
.
It is the same reason that Hollywood always touts dollar amount of ticket sales and not the number of tickets sold. With the ever increasing ticket prices, ticket sales will always increase, even if the number of ticket sales remains the same. If you take into account inflation, Gone With The Wind (1939) is the largest grossing movie.
IPOs are subject to a similar inflationary hype. This is the same Wall Street that crashed the world economy a few years back. They want to make it appear as if everyone is farting sunshine and rainbows so Main Street will start sending money to Wall Street once again.
Be afraid, be very afraid.
And yes, they also have a Paypal type service, but it would have to clear a large number of hurdles to become trusted in the US.
Lack of trust certainly hasn't kept Paypal from being popular.
Just read the countless stories... they can do pracatically anything they want with the money in "your" PP account.
Do what thou wilt shall be the whole of the Law
From the wiki link,
The election of Roosevelt was upsetting for many conservative businessmen of the time, his "campaign promise that the government would provide jobs for all the unemployed had the perverse effect of creating a new wave of unemployment by businessmen frightened by fears of socialism and reckless government spending."
Boy, the more things change the more they stay the same.
The reason Alibaba will take over from Amazon and Ebay is simple.
Have you ever ordered from China before? Because your comments overlook a few things.
1. Shipping. I have never received anything that's been shipped from China in less 3 weeks, and it's usually been closer to 5 or more. (Coincidentally, just before finishing my final comments below, a small package of keychain LED lights arrived which I ordered 4 weeks and 6 days ago.) Sometimes that's ok if it's a cheap gadget I don't need in a timely fashion (keychain LED lights being a perfect example), but for most things I'm willing to pay a few extra bucks to have something within a few days instead of a few weeks, especially when you factor in point #2.
2. Trust in the seller. If you have ordered things directly from China, as I've done through eBay, DealExtreme and others, you know that often what arrives after 5 weeks can be of shockingly poor quality and/or not what you paid for. For example, I recently ordered some US to Euro AC wall plug adapters. They were assembled so ridiculously poorly that I had to disassemble and reassemble each one for them to be decently functional (still scratched all to hell). In another recent instance, a seller got into a drawn out argument with me when I left them a bad review for shipping a terrible quality product: a microUSB cable that wouldn't charge any smartphone and which didn't match the one pictured, though it was close enough that I'm sure they were hoping I wouldn't notice. They were of the opinion that because they refunded my money I shouldn't leave them negative feedback, and whined like a 4-year old about how damaging it would be to their business. Granted, you can have such issues in any virtual marketplace, which brings us to point #3.
3. Trust in the marketplace owner. I trust that if something goes wrong with an Amazon Marketplace transaction, Amazon will go to basic lengths to make sure I'm not getting screwed over. The same goes for eBay to a lesser extent, but still more than Alibaba. I still haven't ordered anything through AliExpress. Why? Because I'm taking enough of a gamble already ordering from Chinese sellers on eBay, who is known for always siding with the buyer in disputes.
As someone who occasionally sells online, I am glad that Alibaba is getting some attention and creating some competition for eBay (and with it, Paypal). But to suggest that Alibaba will put the likes of Amazon out of business seems rather short-sighted -- or at least premature. You may have a point with eBay -- at least giving them a run for their money if Alibaba opens up to US sellers seeking refuge from eBay's excessive selling fees. If they're smart, this is exactly what they'll do with all this IPO money.
www.gaiageek.com