Alibaba's IPO could be 'open sesame' for global expansion
- 19 September, 2014 08:39
Alibaba, an e-commerce giant in China, wants to make new friends in the U.S. Especially friends with money.
The firm is expected to begin offering shares Friday for US$68 a pop on the New York Stock Exchange, in one of the biggest IPOs ever. At that price, the company could raise almost $22 billion, on par with the Agricultural Bank of China's record-setting $22 billion 2010 offering, and handsomely beating Facebook's $16 billion in 2012.
Outside of the investor community, Alibaba is also making nice with a growing number of U.S. consumers and tech companies, as part of an international expansion that could accelerate following its listing.
Don't expect any consumer-facing store ready to steal Amazon's or eBay's thunder. At least not yet. The Chinese company certainly has its eyes on becoming a global Internet player, according to industry analysts and close observers. The path to its goal, however, may not depend only on e-commerce, but also on carving different niches in countries including but not limited to the U.S.
"The IPO claims Alibaba's stake as a global company," said Kelland Willis, an analyst at research firm Forrester who studies e-commerce.
"So much of the world's transactions take place in the U.S.," echoed Scott Strawn, an analyst with research firm IDC. "If you want to compete on a global stage you need to be competing in the U.S."
Earlier this week, the company's founder and executive chairman, Jack Ma, told reporters in Hong Kong that Alibaba plans to "strongly expand" in the U.S. and European markets after its U.S. listing.
Despite its international ambitions, Alibaba's short-term plans will probably target the low-hanging fruit -- growing its existing e-commerce websites in its home market by attracting more foreign merchants and overseas Chinese to them.
Two of Alibaba's biggest consumer-facing sites are Tmall and Taobao, which although dominant in the Chinese market, still have plenty of room to grow and must fend off competition from local e-commerce firms.
"I don't think they have a global plan yet," said Bryan Wang, an analyst with Forrester, adding, "Alibaba's marketplace model may not work in every single country, especially the U.S."
The U.S. has its own entrenched e-commerce companies in Amazon and eBay, and analysts don't envision Alibaba competing with them head-on. The probability of success is low, and meanwhile the Chinese market is still teeming with business opportunities.
Nevertheless, Alibaba has been active in the U.S. Most recently, it launched 11Main, an invitation-only marketplace offering specialty goods, that went online as a beta this past June.
In 2010, it founded AliExpress, an English e-commerce site designed for foreign customers who want to buy retail goods from Chinese merchants. The site is growing, especially in Russia, Brazil and the U.S., the company said in a recent securities filing.
AliExpress and 11Main aren't exactly designed for mainstream American consumers. But Alibaba also has been investing in U.S. tech companies, and not just in the e-commerce sector. It's funded ShopRunner, an online retail site with free two-day shipping, as well as messaging app Tango and ride-sharing service Lyft, among several others.
That activity drives speculation that Alibaba is ready to buy its way into the U.S. market. But Alibaba's recent investments suggest that it is more interested, at least for the time being, in learning how things are done in the U.S. tech sector, rather than outright buying companies, said Michael Clendenin, managing director for consulting firm RedTech Advisors.
"I think they want to take those experiences and apply it back to the home market," he said, pointing to Alibaba's recent investment in U.S. mobile gaming company Kabam as an example. "They are looking at how they can be more competitive in their own domestic gaming market."
Alibaba is already generating more sales in gross merchandise volume than Amazon and eBay combined. And in its 2014 fiscal year ended in March, the company posted sales of $8.46 billion, up more than 50 percent from the previous year.
Sales are expected to grow, even though Alibaba's business is still largely focused on China. The country itself has 632 million Internet users, who are increasingly relying on the Web to make purchases, even as half of China's population still remains offline.
But the country only offers so much growth, and inevitably Alibaba will have to tap foreign markets to keep earnings strong, analysts say.
In the short term, the IPO will undoubtedly help the Chinese company generate international public awareness among consumers, businesses and investors. Funds raised may also let Alibaba make capital investments globally in the areas of infrastructure, data centers and cloud computing.
Further out, Alibaba may be looking to compete more with Google than with Amazon or eBay. As the firm attracts new users and businesses to its sites, and becomes active in more areas outside of e-commerce, the real gold for the company could be consumer data. It's already been trying to expand in China, by launching its own mobile operating system, search engines and messaging app, although they've all struggled to take off among the country's users.
"If you provide people with more reasons to come and visit your sites, then you're able to collect more information about who they are and what their interests are, and you can direct their activities toward things that will drive transactions," said IDC's Strawn.
Analysts are also not ruling out the possibility that Alibaba could use the IPO dollars to make an acquisition or two, but it's not clear what those might be.
Alibaba, like Google or Facebook, is broadening its scope, "branching out into all aspects of the Internet," said Strawn. The Silicon Valley giants want to own people's time online, and now Alibaba's trying to get into the mix.