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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."
http://abcnews.go.com/Business/alibaba-chinese-company/story?id=25591454
"Alibaba -- open sesame. Alibaba -- 40 thieves," Ma said. "Alibaba is not a thief. Alibaba is a kind, smart business person, and he helped the village. So...easy to spell, and global know. Alibaba opens sesame for small- to medium-sized companies. We also registered the name AliMama, in case someone wants to marry us!"
[Fuck Beta]
o0t!
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).
Ali Baba is the wood cutter who uncovers the thieves.
> 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
The vast majority of IPOs are lower in price 6 months after the issue date. Usually what happens is that company owners have some restrictions on when they can start selling stock - and those are typically 6 months or so. So on the day of initial sale supply is very constrained. Later a lot more shares flood onto the market.
For example Facebook went from $38 to $19.
Purchasing IPOs on day of issuance is a sucker move.
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.
Shares go to Alibaba Holdings Group Limited in the Cayman Islands. The contracts enabling proxy investment by Americans (otherwise illegal in China) have never been upheld in a Chinese court of law. Not something I would want as a long term investment.
The less you understand the company, the more attractive it is. I suspect the opacity of its operations are a draw.
I remember the tech bubble: "Two guys with a server and a dream" could make millions (on paper). If they cashed out quickly enough, they could turn it into currency.
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.
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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.
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.
On the other hand who owns Alibaba's 120 billion? Americans now.
US investors don't own Alibaba, the Chinese retail giant. Chinese law doesn't allow foreigners to own a Chinese strategic asset. What US investors are buying is interest in a Cayman Island “variable-interest entity”. Stockholders won't have the usual influence on corporate governance or management.
http://www.marketwatch.com/sto...
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.
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.
Was it, though? China circa 1960s/70s was a totalitarian dictatorship where Tiananmen square was an impossibility simply because any dissent would be crushed long before it would get to mass protest stage, and the yearly number of victims was far greater, too. Compared to China after Tiananmen, the latter is far more liberal. It's even more liberal today.
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,
I did not suggest doing such a thing. The best thing you can do is just trade (and yes, this doesn't preclude e.g. tariffs to even out the price of labor differences, environmental concerns etc).
Profit trumps ethics.
China could easily become an aggressor much the same way Russia is with the Ukraine.
Or the way the US is/was with Afghanistan, Libya, Iraq, Vietnam, Panama, Cuba (Bay of Pigs), etc. Furthermore have you forgotten how the US was founded? (Hint, it wasn't populated with white people 200 years ago.) Have you forgotten the number of dictators that the US has installed and supported including but not limited to Saddam Hussein, Francisco Franco, Hosni Mubarak, Augusto Pinochet and many many more.
Let's not pretend the US has been some paragon of virtue over the years, shall we?
If China were to get in a war with Japan over Japan's northern islands, the share value of these companies could evaporate overnight.
If that happens, the value of a few companies should frankly be the least of your concerns. I'd be a lot more concerned about WWIII starting.
As much as investing in BRICs is tempting, it can not be forgotten that most of these places are not democracies.
Precisely half of the BRIC countries are democracies, specifically Brazil and India. Russia ostensibly is a democracy though in reality not so much these days. China is the only one that is not a democracy. Some people include Indonesia (BRIIC) which is among the most populous countries in the world (currently #4) and it too is a democracy.
"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."
Sorry, no pity toward those investors. They knowingly invested in a criminal venture. They deserve not only to lose their money but to be in prison.
Yeah, but Roosevelt didn't fix the Great Depression, WW2 did.
And before WW2, our Government was in a much better position than it is now --- which is arguably in the bind it is in, from an unholy combination of military spending (Republicans love this) and from poor Medicare/D/SS design and paying government/civil workers too much and giving many of them overly-generous retirement packages after just 20 years work (Democrats love all of this).
The USPS, after it was spun off, reformed its pension plan, and while the few billion it needs a year is loudly denounced, it largely works considering what it's mandated by congress to do and other paremeters it has to work within, plus being one of the largest employers around.
So neither side is really for the people. And why would they be? The people don't control their reelection in reality.
We need an amendment giving power back to the people, and that's by giving only citizens the right to give to politicians in their jurisdiction. No corps donations. No PAC donations. No ALCU or NRA donations. Just citizens. Senators like Biden from Delaware shouldn't have an interest in representing Hollywood. And so on. Congressman from Bumtickle, Idaho should only be able to collect money from the Bumtickle, Idaho congressional district. Senators from their state. Mayors or Mayoral candidates from their city.
That should curb influence, from say, NYC banks.