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Baba-Boom: Wall Street Billions For Ma!
Topic Started: 20 Sep 2014, 05:04 AM (1,333 Views)
Black Panther
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BABA-BOOM: WALL STREET BILLIONS FOR MA!

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Alibaba Surges in New York Trading Debut After U.S. IPO

Alibaba Group Holding Ltd. surged in its U.S. trading debut, after the company raised a record-breaking $21.8 billion in an initial public offering.

The Chinese company’s shares rose 38 percent to $94 apiece as of 11:53 a.m. in New York, after the IPO was priced at $68. The e-commerce company, which started in 1999 with $60,000 cobbled together by founder Jack Ma, is now valued at $231.7 billion. That makes it larger than Amazon.com Inc. and EBay Inc. combined, and more valuable than all but 9 companies in the Standard & Poor’s 500 Index.

Ma, a former English teacher who started the company in his Hangzhou apartment, drew crowds of money managers to meetings held around the world as the company pitched itself to investors this month. Alibaba has profited from China’s burgeoning consumer class by dominating the e-commerce industry in the country of 1.36 billion people.

http://www.bloomberg.com/news/2014-09-18/alibaba-group-said-to-raise-21-8-billion-in-record-u-s-ipo.html
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miw
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Black Panther
20 Sep 2014, 05:04 AM
BABA-BOOM: WALL STREET BILLIONS FOR MA!

Posted Image

Alibaba Surges in New York Trading Debut After U.S. IPO

Alibaba Group Holding Ltd. surged in its U.S. trading debut, after the company raised a record-breaking $21.8 billion in an initial public offering.

The Chinese company’s shares rose 38 percent to $94 apiece as of 11:53 a.m. in New York, after the IPO was priced at $68. The e-commerce company, which started in 1999 with $60,000 cobbled together by founder Jack Ma, is now valued at $231.7 billion. That makes it larger than Amazon.com Inc. and EBay Inc. combined, and more valuable than all but 9 companies in the Standard & Poor’s 500 Index.

Ma, a former English teacher who started the company in his Hangzhou apartment, drew crowds of money managers to meetings held around the world as the company pitched itself to investors this month. Alibaba has profited from China’s burgeoning consumer class by dominating the e-commerce industry in the country of 1.36 billion people.

http://www.bloomberg.com/news/2014-09-18/alibaba-group-said-to-raise-21-8-billion-in-record-u-s-ipo.html
It was interesting to see it suck the money out of other shares over the course of the trading day.

Personally I like JD.Com better. It's kicking Taobao's arse all over the place at the moment and none of the western analysts seem to know it.

Aliexpress is pretty good for the foreign markets though.
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peter fraser
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Well done Jack - smart guy with vision.
Any expressed market opinion is my own and is not to be taken as financial advice
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miw
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peter fraser
20 Sep 2014, 08:12 AM
Well done Jack - smart guy with vision.
He may turn out to have been even smarter than he looks now.

It's possible that the IPO represents the early investors selling out at the peak. There was a stinky little detail in the IPO allowing all the "friends and family" investors to get out at IPO which is unusual and troubling to me. I ouldn't be touching this one until I found out just how many of them did get out.

As background, Alibaba has several fairly distinct businesses.

1. Alibaba.com - the first thing they started, which is a B-B platform that helps mostly foreign businesses source stuff from Chinese manufacturers. If you get on there, the shops all say there are minimum quantities - all commercial quantities. That said, I have bought stuff through Alibaba.com in qty 1 on several occasions. Not sure how this business gets paid, since it does not capture most of the business that goes through it. Basically what you get out of it as a customer is an email address and a phone number and then the negotiations start, and you are completely on your own.

This is a great concept, but I don't see where its growth can come from.

2. Taobao. This is sort of like Ebay without the auctions. Millions of tiny stores selling stuff. Started out in about 2002, several people I know have tried to make a living at some stage by running a Taobao store. Taobao manage the transaction and take a cut. They also provide logistics support to many of the stores, although most of my friends did not use it - they used one of the other companies that make money out of providing logistics to Taobao stores.

Taobao is having its lunch eaten big-time by JD.Com which in turn are getting strong competition in the grocery department from Yihaodian (51% owned by Wal-Mart).

3. Direct payment system. Alibaba own a direct payment system called Zhifubao or Alipay. It is a really advanced mobile payments system and has a very strong share. You can use it for lots of things besides buying stuff on Taobao, including buying stuff in brick and mortar stores, online payments, and direct transfers from phone to phone.

JD on the other hand is strongly tied up with Tencent/QQ who have their own direct mobile payments system. It doesn't seem quite as good as Alipay but it has strong positioning in certain areas - for example ordering and paying for taxis is sewn up by Tencent.

Full disclosure: I am long JD and currently doing research into possibly turning it into a pairs trade by going short BABA. Still a bit of research to be done before I take that step and I want to watch BABA for a while before jumping in on that one as well.


EDIT: I forgot to mention Alibaba's 4th business: Aliexpress.

This is a B2C business a bit along the lines of Alibaba, except that Alibaba get into the transaction by brokering the payment and also to some extent guaranteeing the delivery of the goods because they hold the payments in escrow until the recipient confirms delivery or the guarantee period runs out. They also to some extent broker customer service which helps a lot with the language barrier.

I have personally used Alibaba, JD, Aliexpress, Alipay and the Tencent/QQ payment system but not Taobao. No complaints about any of them really, but particularly impressed with JD.
Edited by miw, 20 Sep 2014, 10:07 PM.
The truth will set you free. But first, it will piss you off.
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peter fraser
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miw
20 Sep 2014, 09:24 PM
He may turn out to have been even smarter than he looks now.

It's possible that the IPO represents the early investors selling out at the peak. There was a stinky little detail in the IPO allowing all the "friends and family" investors to get out at IPO which is unusual and troubling to me. I ouldn't be touching this one until I found out just how many of them did get out.

As background, Alibaba has several fairly distinct businesses.

1. Alibaba.com - the first thing they started, which is a B-B platform that helps mostly foreign businesses source stuff from Chinese manufacturers. If you get on there, the shops all say there are minimum quantities - all commercial quantities. That said, I have bought stuff through Alibaba.com in qty 1 on several occasions. Not sure how this business gets paid, since it does not capture most of the business that goes through it. Basically what you get out of it as a customer is an email address and a phone number and then the negotiations start, and you are completely on your own.

This is a great concept, but I don't see where its growth can come from.

2. Taobao. This is sort of like Ebay without the auctions. Millions of tiny stores selling stuff. Started out in about 2002, several people I know have tried to make a living at some stage by running a Taobao store. Taobao manage the transaction and take a cut. They also provide logistics support to many of the stores, although most of my friends did not use it - they used one of the other companies that make money out of providing logistics to Taobao stores.

Taobao is having its lunch eaten big-time by JD.Com which in turn are getting strong competition in the grocery department from Yihaodian (51% owned by Wal-Mart).

3. Direct payment system. Alibaba own a direct payment system called Zhifubao or Alipay. It is a really advanced mobile payments system and has a very strong share. You can use it for lots of things besides buying stuff on Taobao, including buying stuff in brick and mortar stores, online payments, and direct transfers from phone to phone.

JD on the other hand is strongly tied up with Tencent/QQ who have their own direct mobile payments system. It doesn't seem quite as good as Alipay but it has strong positioning in certain areas - for example ordering and paying for taxis is sewn up by Tencent.

Full disclosure: I am long JD and currently doing research into possibly turning it into a pairs trade by going short BABA. Still a bit of research to be done before I take that step and I want to watch BABA for a while before jumping in on that one as well.
thanks for the information. I've only ever used Ali Baba - a shipment of LED bulbs, another shipment of Coffee, and a number of ETA Swiss movements for some quartz watches that I repaired.

The system worked well on each occasion.

I was thinking today how Lucky Jack Ma was. This could only happen on this scale in China or India. Had he been born in any other period of China's history this idea couldn't have worked, it required the technological revolution that the internet provided to allow this trading platform to work.

His ambitious thinking would have seen him sent for a term in the countryside in the cultural revolution which wasn't that long ago.

The rapid and radical changes needed to allow Ali baba and Jack Ma to happen are just amazing really.
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miw
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Update.

1. Alipay (which I think is actually the best part of the whole Alibaba setup) is NOT part of the deal. In fact, Jack Ma floated Alipay in conjunction with Yahoo and Softbank 3 years ago and then proceeded to effectively steal it back from them, citing a secret PBOC ruling that the would not allow third-party-payment platforms to be controlled by a VIE structure.

2. Taobao was split into two brands a couple of years ago - Taobao which continues with all the C2C (ebay-like) business and TMall where you have to be a big shop to be a seller - the B2C part of the business. Note that these are both 100% third-party businesses. Alibaba has no shop of its own in the TMall. There is also another platform called Juhuasuan which is for group buying. I previously thought that Alibaba owned some logistics, but in fact it owns no logistics. It cooperates with a logistics management company called China Smart logistics, of which it owns (wait for it) 48% -i.e. effectively no control at all. I wonder who owns the rest? This company in turn is just a platform company that uses third-party logistics companies.

Compare this with JD.com which is the biggest seller on its platform but has third-party sellers on the same platform which account for less than 10% of total volume (think Amazon) and which uses its own logistics and warehousing for all its own stuff. What's more, JD's own logistics is amazing. If you order in the morning, you have the product in the evening. (4-5 days for third-party stores, which is the same as T-Mall and Taobao).

3. 85% of the revenue comes from Taobao, TMall and Juhuasuan and I expect most of that from TMall, but I ave not confirmed this. Alibaba.com and Aliexpress make up the other 15%.

4. It is a VIE structure (like all the big Chinese Internet IPOs) where the things that foreigners are not allowed to own like the licence to run an internet company, etc. are owned by the Variable Interest Entity which is wholly Chinese-owned but this entity is effectively contractually controlled by a Wholly-Foreigned-Owned-Enterprise (WFOE) usually registered in HKG or the Caymans (in this case Caymans). The WFOE is supposed to get all the profits of the structure and this is what has just been floated unter the BABA ticker.

And now we get to the stinky bits.

5. The VIE is pretty-much 100% controlled by two people. Jack Ma and Simon Xie, the two founders. The best practice for VIEs is to have at least 4 VIE shareholders, none of whom has more than 33% shareholding, and preferably none of them executives. Alibaba was refused listing by the Hong Kong Stock exchange because of this!

6. The major money-spinners are, as I mentioned, 100% third-party business partners. This means that the real assets of the company are the domain name, a bunch of servers, the operating licence and the intellectual property in the code that runs the platform. The only asset out of these that the WFOE is legally allowed to own is the copyright on the code. The rest is controlled by two people. It is a lot of trust to put in someone's integrity, especially the integrity of someone with form.

7. Straight after the float, there are 2,465,005,966 ordinary shares. Sold in the float are somewhere about 320M-368M ADS representing one ordinary share in thw WFOE each, or 13% of the company. The remaining 87% of the company are held by the original owners of the BABA group - Jack Ma, Yahoo, Softbank (?). Normally all these shares would be subject to a 6-month lockup, but in this case there are 128.4M (5.2%) of the shares that are withheld from the lockup pool - i.e. the owners can sell them on the open market immediately at post-IPO prices. This seems unusual to me. I'm betting a lot have already been sold on the first day of trading.

8. 60% of the IPO proceeds go to the sellers of the shares - i.e. they get $40.80 per share and the company gets $27.20. This is a pretty low percentage going into the company. Admittedly, the company is not capital intensive and it gets $8.2B cash for operations, but it has a whiff of exit strategy about it.


The research continues. In particular, I have strong doubts about the claimed market share for Taobao and T-Mall but have yet to substantiate those doubts.
Edited by miw, 21 Sep 2014, 09:07 PM.
The truth will set you free. But first, it will piss you off.
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peter fraser
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Jack Ma’s Five Most Memorable Lines
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Alibaba Group Holding Ltd.’s record initial public offering, widely hailed as a success, was not just the U.S. coming-out party for the Chinese e-commerce giant, but it was also one of the first times the broader public got to hear from the company’s founder and executive chairman Jack Ma.

Some of Mr. Ma’s offbeat answers during an interview on CNBC Friday elicited a slew of responses on Twitter and likely left many investors puzzled.

MoneyBeat took a look at some of the more eccentric answers during Friday’s interview and interviews past. Here are the five best.

1. My hero is Forrest Gump.

“I got my story, my dream from America,” Mr. Ma said on CNBC Friday. “The hero I had is Forrest Gump… I like that guy. I’ve been watching that movie about 10 times. Every time I get frustrated, I watch the movie. I watched the movie before I came here again to New York. I watched the movie again telling me that no matter whatever changed, you are you.”

2. Just trust me.

When asked about what he would say to investors concerned about Alibaba’s corporate governance or lack of it, Mr. Ma asked simply for trust. “Trust. Trust us. Trust the market, and trust the young people. Trust the technology.”

He added, “when you trust, everything is simple. If you don’t trust, things get complicated.”

3. Someday you’ll find out why we spun out Alipay.

One of Alibaba’s most controversial moves was its 2011 spin-off of Alipay, an online payment processor that’s similar to PayPal and had been one of the company’s most profitable divisions.

When asked how investors should view the spin out of Alipay, Mr. Ma said. “Someday some of the people will find out. Today is not [the] time. I would say I have 25,000 smart people. If I do anything wrong, I’m transparent… Someday when people realize when people know the real story, they will feel proud.”

4. His fortune is a headache.

When asked what he’d do with his fortune, which topped $18 billion by Friday’s close, he called it a “headache,” and alluded to the fact that spending it will be difficult. “My job is making money, helping other people make money,” he told CNBC on Friday. “I am spending money, trying to make sure more people get rich, because you cannot spend a lot of money, right? So my job is spending money, helping others. This is a headache.”

In 2013, in an interview with the WSJ, he explained his skepticism about philanthropy and why he was unlikely to join the billionaires’ pledge and devote half his wealth to charity. “This idea of giving your money out was not created by Gates and Buffett. It was created by the Communist Party in the 1950s!”

5. He had planned to sleep for three months.

In that 2013 WSJ interview, as he was leaving the CEO post at Alibaba, Mr. Ma said he planned to “sleep for three months.” It doesn’t seem like he’s been all that successful in that goal.
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3. Someday you’ll find out why we spun out Alipay.

One of Alibaba’s most controversial moves was its 2011 spin-off of Alipay, an online payment processor that’s similar to PayPal and had been one of the company’s most profitable divisions.

When asked how investors should view the spin out of Alipay, Mr. Ma said. “Someday some of the people will find out. Today is not [the] time. I would say I have 25,000 smart people. If I do anything wrong, I’m transparent… Someday when people realize when people know the real story, they will feel proud.”


The issue is not *why* he spun out Alipay. The issue is *how* he spun out Alipay.
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Massive
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miw
20 Sep 2014, 09:24 PM
I have personally used Alibaba, JD, Aliexpress, Alipay and the Tencent/QQ payment system but not Taobao.
Blasphemy !!

Taobao is the duck's nuts ! My wife has a package arrive from them literally every day. She does a little shopping in the afternoon before i get home and it arrives the next day ( or two )
Edited by Massive, 23 Sep 2014, 06:49 PM.
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miw
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Massive
23 Sep 2014, 06:48 PM
Blasphemy !!

Taobao is the duck's nuts ! My wife has a package arrive from them literally every day. She does a little shopping in the afternoon before i get home and it arrives the next day ( or two )
Yeah. I am about to give T-mall a spin. I have never had need of them before because JD has everything I need, but now I am curious.

I was sharing with a local for a couple of years, and believe me I got sick of opening the door and signing for things. Tmall, Taobao, JD, Jumei, the lot.

For third-party stores Taobao/Tmall and JD use the same couriers. I have had stuff arrive in 2 days but 3-5 is typical. On JD the courier almost always has the stuff same-day, but then it gets routed across the country. It depends on where the 3rd-party store has their warehouse. They are almost always closer to Shanghai than they are to Beijing, of course. If you buy from JD's own shop, you get a huge advantage in shipping and after-sales service - if you order by about 10am you have it same-day, and you don't have to pay until it arrives. If you don't like what you get for any reason, they will send another courier to pick it up or swap it. For refunds it works much much better if you have Alipay, which they use. The Tencent/Wechat payment system is not as good as Alipay. (Yet?)

But T-Mall has the bigger selection and on the comparisons I have made, cheaper prices (mostly only slightly though and delivery fees seem more common on T-Mall.)
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