Alibaba IPO and the Future of Online Sales
Alibaba IPO Takes Company to $230B Market Value: Larger than Amazon and eBay Combined. What is Future of Online Sales?
Started by a former English teacher in his apartment, Alibaba now controls 45% of the e-commerce market in China for a total of more than $2.5B in annual sales. The company has filed for an initial public offering (IPO) to list on the New York Stock Exchange as early as the end of next week. Alibaba has over 280 million users.
In 2013, the online platform was responsible for more than $248B in merchandise volume, exceeding that of Amazon and eBay combined. Wallstreet Analysts are predicting it will become the largest IPO in history, eclipsing Visa’s record 19.7B IPO. More importantly, this would immediately value Alibaba at $150B – $162B, placing it in the company of Amazon ($160B) and Facebook ($201B) according to Tech 30, a technology stock index.
Most Americans have not heard of Alibaba but that is about to change. What does this mean for American online commerce? Speculation abounds but here are some likely scenarios and key take-aways:
- Amazon and eBay will remain the top two US e-commerce sites — for now. But that will likely change in the coming years as Alibaba gains traction in the USA.
- Watch for a shift in balance of trade. According to the Census Bureau, in 2013, the USA imported $440.4B worth of Chinese goods and exported only $127B to China in the same period. Most Chinese know about Alibaba yet few Americans have any clue about the company. So, so expect the trade gap to come down as US businesses and consumers learn more about Alibaba’s AliExpress, Tmall and Alibaba.com websites, which will allow them to expand their presence into a growing middle class Chinese market to sell their goods.
- The geographic and cultural divides between China and the USA will narrow. CustomBulkUSB leadership travels throughout China, to include Beijing, Shanghai and Shenzhen meeting with business partners and inspecting facilities and operations to ensure we receive the highest quality products at competitive prices so we can pass on those savings to our customers. These activities have improved relations on both sides of the Pacific. With Alibaba coming to the USA, this scenario will be repeated at an accelerated rate hundreds of thousands of times.
- Long term, consumer prices will fall putting pressure on Walmart, eBay and Amazon and bringing customers and manufacturers closer together. While scams abound on Alibaba, once Americans see how much they can save by dealing directly with the Chinese, they will not be able to resist. This will put a strain on USA based e-commerce giants, Amazon and eBay. Look for the market to develop better mechanisms for identifying credible, quality Chinese vendors, reducing the frequnecy of scams and counterfeit goods.
- Investors should consider the Yahoo! proxy play as an indirect, safe investment in Alibaba. Simply put, Alibaba will still be a Chinese-owned company once it starts trading on the NYSE this Friday. The safe way to invest in Alibaba as an American is through a proxy such as Yahooo!, which has a 23% stake in Alibaba.
We are about to see a sea-change in e-commerce unfold before our eyes in the coming months and years as China comes to the USA in a very real way. Take a close look at how this will impact your business — it can be a blessing or a curse depending on how you react to — or better yet anticipate — its effects.
Sep 29, 2014 Update: Alibaba benefited from a very good IPO, which valued the company at more than $230B US dollars.