Alibaba IPO: Never mind the tech floats that have sunk before they swam, investors will pay whatever it takes to ride the Alibaba wave

 

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The Independent Online

Sixty-eight dollars – or £41.50 to you and me. That’s how much it cost for a single slice of Alibaba in its IPO, equivalent to around one 2 billionth of the Chinese e-commerce giant.

China’s answer to Amazon, eBay, PayPal and then some smashed records when it floated on the New York Stock Exchange on Friday, raising $21.1bn on a $167.6bn price tag. That’s more than Lloyds bank, Vodafone, BT, Tesco and Next combined.

Alibaba’s customers rang the bell to start trading on a packed exchange floor, but a torrent of orders from retail investors meant the opening auction dragged on, delaying trade for two hours. When things did get moving, shares leapt by as much as 46 per cent to $99.50. 

It might seem a bit expensive – you can write your own 40 thieves joke – but some feel that the 35 banks and brokers that worked on the offer got Alibaba away on the cheap.

Eric Brock, a portfolio manager at the Boston-based Clough Capital, told Bloomberg: “I’d be comfortable with the shares pricing even a bit above the higher targeted range.” The Bloomberg article quoted several other investment managers who said, in essence, it’s a bit of a bargain.

Here are some impressive numbers: across its various platforms, Alibaba received 11.3 billion orders last year; 76 per cent of all purchases made on smartphones in China are on an Alibaba site; last November its two main sites, Taobao and Tmall, received $5.75bn worth of orders in just 24 hours; and both income and profits are growing at a double-digit clip.

So maybe Alibaba, founded by the former English teacher Jack Ma in 1999, isn’t so dear after all. The hefty price tag certainly didn’t put off Wall Street – retail investors were largely excluded from the initial offer due to a “frenzy” among investment firms to get in at the ground floor. The Wall Street Journal reported that at least half of those who put in orders for stock got nothing.

But is Alibaba a good investment? Recent mega-floats that have been greeted in similarly rapturous terms have faced a rocky road, particularly those in the tech sector.

Facebook lost around 30 per cent of its value in its first year of trading, taking 15 months to recover to its $38-a-share offer price; last year’s blockbuster, Twitter, leapt higher in its first few months before falling almost $10 below its issue price in May, only getting above water two months later; and the UK’s King Digital, of Candy Crush fame, has had a dismal time since joining the New York Stock Exchange in March, losing 28 per cent of its value to date. “In vogue” tech companies going public often struggle under the weight of expectations.

It’s perhaps unfair to compare Alibaba with two social media companies and a games developer. A better comparison would be Amazon, which listed in 1997. Anyone still sitting on shares bought back then is today enjoying a 1,700 per cent return on their investment. If Alibaba can match that, $68 will look like chicken feed.

But there are differences. Back in 1997 Amazon was just an online book shop, two years into business. Its wondrous expansion into pretty much everything was still to come. Alibaba, 15 years in, appears to have less road stretching ahead of it.

Mr Ma is expanding the business internationally but the biggest bet is that Alibaba can ride the wave of e-commerce as it washes over China. Consumer spending accounts for just 36.5 per cent of China’s GDP, compared with 66.8 per cent in the US. Equally, of the 618 million people online in China, only 302 million are shopping on the net, a proportion Mr Ma is betting will surely grow.

Mr Ma told CNBC that he hopes within 15 years the company will be compared with Microsoft – and he wants Alibaba to be bigger than Walmart. The initial surge in the share price put it just $5bn away.

Uncertainties remain as to how Alibaba will fare but it seems that investors are willing to pay whatever the price to see what happens.

Ellison steps down as the clouds gather over Oracle

As Wall Street welcomes one tech entrepreneur, it waves off another – Larry Ellison. The Oracle founder is doing a lap of honour, stepping back from the position of chief executive to be chairman and chief technology officer at the company he founded in 1977. Not as well-known as Silicon Valley’s other tech billionaires, he is a backroom Bill Gates, making his $51bn fortune in database software for businesses rather than PCs for the home. 

Mr Ellison, 70, has headed Oracle for 35 years, building it into an $182bn Goliath. It’s easy to think that the yacht-loving entrepreneur, who owns 98 per cent of Hawaii’s Lanai island, has earned his  time in the sun.

But Mr Ellison may be doing a Sir Terry Leahy and pushing the eject button just as things start to go south.

Accompanying the news of the management change was a weak set of first-quarter results and Peter Garnry, head of equity strategy at Saxo Bank, says: “The outlook was even more cloudy, causing investors to push the stock price down in after-hours trading.”

Oracle is facing a tough transition to cloud-based computing, while it is also facing increasing competition from the likes of Salesforce, Workday and MongoDB, which have been poaching executives as well as customers. The company has  missed analyst forecasts in six of the  past eight quarters.

Seasoned executives Safra Catz and  Mark Hurd, currently co-presidents, will replace Mr Ellison as joint chief executives but Mr Garnry is downbeat on their prospects: “Very few companies have succeeded in having two chief executives. The issue with a dual-leadership role is that it dilutes authority and often reduces clarity within the organisation. This could potentially be a major drag for Oracle’s performance in the future.”

Mr Ellison isn’t disappearing and played down the reshuffle, saying: “Safra and Mark will now report to the Oracle board rather than to me. All the other reporting relationships will remain unchanged. The three of us have been working well together for the last several years, and we plan to continue working together for the foreseeable future.” But it could still be a good time to take a back seat.

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