Alibaba: The next Facebook?

Alibaba-Group

The world’s biggest online retailer was considering a more conservative valuation than the one the social networking company achieved last year, a person familiar with the situation said. While Alibaba, based in Hangzhou, Zhejiang province, has said it has no timetable for an initial share sale, analysts are expecting an offering this year or next.

Alibaba Group does not want to be the next Facebook, at least for its prospective initial public offering.

Recall that Yahoo! owns 24% of Alibaba and will sell half that stake when Alibaba IPOs — which could be as soon as next week.  Yahoo’s stake will be sold at the IPO price.

The Alibaba Group is larger than Amazon and eBay combined. Think of Alibaba as a company that is a combination of eBay and Amazon. It is an online company with multiple revenue streams that are more conventional than a social network site.

Alibaba.com is a B-to-B, or business-to-business, website. It links up businesses around the world looking for suppliers. For instance, they link wholesalers to distributors around the world, from the UK to China to the US.

Alibaba, which has made Jack Ma Yun a billionaire since he founded the company in 1999, is already in the early stages of a Facebook-like speculative fever over its valuation.

It would be odd, then, if Alibaba priced itself at $62.5 billion, given that Facebook’s market cap is currently $66 billion.  Which do you think has a more sustainable long-term business model: Facebook selling ads or Alibaba transacting with 1.3 billion Chinese?

If you only look at the revenue difference between the two companies, you would conclude that Alibaba should be valued at $80 billion.

That suggests that Yahoo!’s 24% stake is worth $19.2 billion pre-tax or $13 billion net.  Yahoo’s current market cap is $29 billion, which includes about $6.5 billion of net cash and pref shares in Alibaba, and a $6.5 billion (net) stake in Yahoo Japan.

Alibaba does not sell merchandise itself. Instead, it runs platforms including Taobao Marketplace and Tmall.com which connect retail brands with consumers – a cross between Amazon and eBay.

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