China's e-commerce giant Alibaba Group is about to raise billions of dollars on North American stock markets and that could be a precursor to a full blown launch into North America.
Alibaba is eyeing the major stock exchanges in New York hoping to become the largest tech IPO in history.
Its filing Tuesday with plans to raise $1 billion have generated huge buzz on Wall Street. But experts say that figure was just to get the ball rolling and when all is said and done the company is likely to raise more money than Facebook did in its $16-billion US IPO two years ago.
Its Taobao and Tmall websites and Alipay payment system give it access to China’s 618 million web surfers in a market where online shopping is forecast by consulting firm McKinsey to triple from 2011 levels to $400 billion a year by 2015.
“It’s created essentially the Google of China. It’s created the Groupon of China. It’s created the Amazon.com of China, the eBay of China and the Paypal of China,” says Sam Hamadeh, CEO of Privco, a New York-based financial research company.
'What could they possibly do? We don't know because we've never had a player with the talent pool that Alibaba has with this potential amount of money entering this space the e-commerce space' - John-Kurt Pliniussen, Queen's University professor
Alibaba, started out in the apartment of Jack Ma, a former English teacher, as a way for Chinese companies to sell goods internationally.
It grew by gobbling up rivals and related businesses, a strategy it is likely to continue pursuing in North America once it has an injection of cash from an IPO, according to experts.
John-Kurt Pliniussen, a professor at Queen’s University in Kingston who studies e-commerce strategies, says the company is likely to diversify, possibly in the area of logistics.
“The real action for them is outside of China,” he told CBC News.
“The important part of this if they're smart they’re going to buy FedEx and/or UPS and/or eBay and/or PayPal depending on the valuation they come up with and the amount of cash they are able to acquire.”
He said Alibaba has come up against a wall in its Chinese growth plan – it’s having trouble delivering to more remote regions or wooing poorer consumers at the rate it wooed the internet generation.
But if it makes the right moves in North America, it could cut into the business dominated by Amazon and Apple.
“What could they possibly do? We don't know because we've never had a player with the talent pool that Alibaba has with this potential amount of money entering … the e-commerce space,” said Pliniussen.
“But they've already shown signs that they’re aggressive and eager to diversify. They've already spent billions on acquisitions. They're not afraid to spend money, they just need more money. That's the purpose of an IPO.”
4 big shareholders
Most of Alibaba is owned by four shareholders: Japan's SoftBank Corp., with a 34 per cent stake; Yahoo, with 23 per cent; former CEO and co-founder Jack Ma with 8.9 per cent; and vice-chairman and co-founder Joseph Tsai with 3.6 per cent.
The Chinese government is not about to let a company as prominent as Alibaba be held by Wall Street investors.
People who buy Alibaba stock will actually get a stake in a Cayman Islands-registered entity, which is under contract to receive the profit from Alibaba’s lucrative Chinese assets. That makes a play into the U.S. market all the more likely.
"Alibaba has recently created English-language websites for all of its services and so it actually has a target on Google, on Amazon, on Apple, on Facebook, on Twitter. A lot of these companies need to be concerned because Alibaba intends to become a household name in the West," Hamadeh said.
A New York listing will get Alibaba name recognition. And powerful backers – such as part-owner Yahoo – could create synergies in the North American market.
"A lot of people don't know that Yahoo owns almost a quarter of Alibaba. So if Alibaba becomes worth $200 billion (US), they potentially have a $50 billion asset, which is worth more than Yahoo is on the stock market," he added.