Alibaba surges on massive demand in trading debut

Alibaba is nearly unknown to most Americans but is ubiquitous in China, where it is responsible for 80 percent of online sales

 

Alibaba Group Holding’s shares surged in their first day of trading on Friday, as investors rushed for a slice of what looked likely to be the largest initial public offering (IPO) in history.

The stock opened at $92.7 and quickly rose to a high of $99.7 in active trading. More than 100 million shares changed hands in composite trading within the first 10 minutes. Till the time of going to print, shares were up 33 per cent at $90.5.

The company, founded by Jack Ma in his apartment in 1999, now accounts for 80 per cent of online sales in China. The company earned $3.7 billion in the year ended March this year, up about $2 billion compared to the previous year.

“I don’t want disappointed shareholders; I want to make sure they make money,” Ma said on the pricing, on CNBC, adding he worried most when customers were happy. On Friday, about 100 people gathered outside the New York Stock Exchange (NYSE), many of them Chinese tourists with cameras.

“This is the most anticipated event I’ve ever seen in my 20-year career on the floor of the NYSE. I think today’s move is sustainable: The company is profitable, unlike some of its competitors, and it is a way for traders to tap into the Chinese growth story,” said Mark Otto, partner with J Streicher & Co, a trader on the NYSE floor.

The pricing of the IPO on Thursday initially raised $21.8 billion for the company. Scott Cutler, head of the NYSE’s global listing business, told CNBC underwriters would exercise their option for an additional 48 million shares, to bring the IPO’s size to about $25 billion, making it the largest in history. The sale values the company at about $168 billion, more than American icons such as Walt Disney and Coca-Cola. Should the stock close at $90 on its first day, it will be worth about $222 billion, close to the value of Procter & Gamble.

However, with the big first-day gain, investors hoping for more might be disappointed. At a price of $90.5 a share, the stock is valued at 38 times its estimated earnings per share for the financial year ending March 2015, roughly in line with Facebook’s valuation of 39 times the forward earnings, but nowhere near Amazon’s lofty multiple of 264, according to Thomson Reuters Starmine data.

“The question is whether it will become dead money for the next six months,” said a fund manager. “Will it just trade at $93 and stay flat?”

Ma, a former English teacher, now has a personal fortune of about $14 billion on paper, vaulting him into the ranks of technology billionaires such as Bill Gates and Jeff Bezos. The IPO is expected to make millionaires out of a substantial chunk of the company’s managers, software engineers and other staff.

Demand was intense among retail investors. J J Kinahan, chief market strategist at retail brokerage TD Ameritrade Holding, said the company received customer orders amounting to about 70 per cent of what it saw for Facebook, and about three times the orders it recorded for Twitter’s IPO.

With underwriters deciding to sell more shares, the company’s offering becomes the largest in history, surpassing Agricultural Bank of China’s $22.1-billion listing in 2010.

NYSE held extensive tests to ensure it would be able to handle the heavy trading volume. “We’ve had a lot of major IPOs, and when you have one, it’s always the biggest until the next biggest one comes along,” said Ted Weisberg, floor trader with Seaport Securities in New York, who has been a member of NYSE for 45 years.

The deal allows cornerstone Alibaba investors such as Japan’s Softbank Corp and Yahoo! to profit from getting on the ground floor at the company. Yahoo! sold about $8 billion worth of shares in the offering, leaving it with 16.3 per cent stake. Shares of Yahoo! were hit on Friday, falling six per cent.

Softbank is not selling for now. It will have 32 per cent stake, making it the largest single shareholder.