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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."
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).
It's a Chinese company located in China, and most of its business and customers are in China. So why is it doing its IPO on the US stock market?
Shouldn't NYSE/Nazdaq disallow this? SEC and FTC have no jurisdiction in China or anywhere else outside the USA. If a chinese company listed on NYSE did fraudulent accounting or whatever, SEC can't do jack shit about it.
The whole thing seems like a clever scheme by Chinese companies and Goldman Sachs to sucker money out of U.S. investors.
The IPO also wasted nearly $10B considering that the issue price was $68 and it started trading at $95. I just can't understand the logic behind the IPO mechanism. The purpose of an IPO is to raise as much capital as possible for a company to enable it to grow. However, 41% of the IPO value didn't go to the company; it went to lottery-winning middle men who were given shares for $68 and immediately flipped them to the open market.
An IPO should operate like a Dutch auction, with company having a trading account loaded with all of the IPO shares and starting sale for at a high valuation like $200 and then ticking down 1% every minute that "too few" shares are sold. This maximizes the haul for the IPO company by not squandering billions of dollars on bank insiders.
Yes alibaba is a theives market. Alibaba does little to root this out too. Moreover the entire china small items trade competiveness relys on the rediculous postage rates (low) that allows delivery in the US for a mere $1 worth of postage. Finally all the small vendors lie about the item in the postage to evade customs charges.
Amazon could make great noises and will.
On the other hand who owns Alibaba's 120 billion? Americans now. If the congress sicks their dogs on ALibaba it's the same as pilfering 120 billion from investors.
Meanwhile amazon has a PE nearing 1000 (who are they kidding?). AMazon's 1000 PE is justifed only on the basis of their growth rate not their earnings. If their growth is threatened (enter alibaba) their stock price crashes. if it crashes to a P/E ratio of 30 or 100 then 90% of the stockholder calue is whiped out. Gone. Not transfered. Gone.
So what's your poor bribed congressman to do. Act on alibaba's theivery to save Amazon, or not?
tough choice.
Alibaba's stock price over the next year will be a race between their growth in value, and the trees Amazon and E-bay fell in their path. I predict it goes up for 1/4 then down in response to regulatory pressure after the elections. THen eventually back up if their revenues grow,.
Some drink at the fountain of knowledge. Others just gargle.
As Chinese economy grows, so does its middle class. As its middle class grows, it demands more democratic reforms and more government responsibility - ultimately, a way to better China, for both its people and its neighbors.
That was the Nixon/Kissinger theory of the 1960s/70s. It was used to cut China all sort of political and economic slack. It was proven wrong by the 1989 Tiananmen Square Massacre.
So if you want a better China, you should do the exact opposite of what you're doing.
No. If you want a better China then the US should treat China as China treats the US. Have reciprocal economic and trade policies, punitive measures for egregious behavior, ... No more cutting them slack hoping they will moderate over time, no more treating them like they are an impoverished developing nation, ... To create an environment where only respect for human rights and the rule of law is necessary. Free trade requires that trade also be fair.
And before someone starts with all the US debt they own. They need those US bonds to manipulate their currency to create a huge built-in discount for Chinese goods and services. To stop buying US bonds, or to sell their currently held bonds, would cause their currency to rise. Their artificially low currency is the real key to their global success, not low wages. They are as dependent on their US bonds as we are.