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Alibaba becomes world’s biggest ever IPO

H.S. Borji
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Alibaba becomes world’s biggest ever IPO

Alibaba Group Holding Ltd. (NYSE:BABA) became the biggest ever initial public offering in history on Friday, as strong demand for the e-commerce giant pushed its fund-raising target to $25 billion.

Strong demand for Alibaba shares led underwriters exercise a so-called “green shoe option,” allowing the company to sell an additional 48 million US depositary shares. That boosted the size of the initial public offering by 15 percent to $25 billion, surpassing the previous IPO record held by Agricultural Bank of China, which raised $22.1 billion in 2010.

A consortium of banks managed the initial offering, including Credit Suisse(NYSE:CS) , Deutsche Bank (NYSE:DB) , Goldman Sacks (NYSE:GS) , JPMorgan Chase (NYSE:JPM) and Citigroup (NYSE:C) . These underwriters earned approximately $350 million on the deal.

Rothschild served as Alibaba’s advisor on the IPO.

The IPO debut sent Alibaba’s market capitalization to $231.44 billion, surpassing Facebook on its very first day.

The company’s stock surged 38 percent $93.89 in its debut on Friday, the biggest first day jump for an IPO valued at more than $10 billion.

Share prices declined 3.6 percent to $90.30 in Monday’s New York session.

Alibaba received widespread media attention this year after news emerged the China-based company was planning to go public. Alibaba, which was founded in 1999 by Jack Ma, dominates the Chinese e-commerce market, and currently offers nearly a billion items for sale on its online ecosystem that targets businesses and consumers.

As of March 31, 2014, the company employed more than 22,000 people in 109 offices around the world, including 90 offices in mainland China. Alibaba has ten major businesses and related affiliates, including Taobao.com, Tmall.com and Alipay.com, China’s largest third-party online payment service processor.

So, why all the fuss about Alibaba?

For starters, the company handles about a trillion dollars’ worth of transactions every year, more than competitors eBay and Amazon combined. Alibaba’s total sales for 2014 are estimated to reach $420 billion.

The company’s profits tripled in the June quarter, as revenues surged 46 percent annually to reach $2.54 billion. Alibaba currently has 279 million online shoppers who spend nearly $300 billion each year on the company’s website.

Alibaba has solid growth prospects in the short-term, as the company capitalizes on China’s growing internet penetration. Currently, less than half of China’s 1.36 billion people access the internet. By 2015, this figure is expected to exceed 850 million. These and other factors are expected to boost Alibaba’s financials next year. The company’s profits are expected to approach $7 billion in 2015, while revenues are expected to grow more than 30 percent each year. By 2016, Alibaba could be looking at revenues of $20 billion.

However, Alibaba isn’t without its fair share of detractors, who claim the company would need to grow at a torrid pace to generate even decent returns for investors. According to a recent article published in Fortune Magazine, Alibaba’s market capitalization would need to grow from $231 billion to $777 billion by 2014 to deliver a modest annual return of 10 percent for shareholders.

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