Alibaba is on track to potentially become the largest U.S. initial public offering ever. If the Chinese Internet giant prices at the high end of its $60 to $66 a share range, it will bring in $21.1 billion.
Much has been touted about the company’s brilliant growth potential as it pioneers Internet retail in China, and investors have already flocked to get into the deal. In its prospectus Alibaba says it has 279 million online customers who spend nearly $300 billion on the company’s sites. By those metrics, it would be the largest online and mobile seller in the world — and its IPO hype would be justified.
The biggest U.S. IPO
Alibaba’s massive offering would put it at the top of the biggest-ever U.S. IPO list, beating out Visa (V), which currently holds the record after it raised $17.9 billion in 2008, according to Bloomberg data. Standout tech companies such as Google (GOOG) and Amazon (AMZN) don’t even make the list.
And if the bankers choose to execute an option to sell more shares, Alibaba’s IPO sum could jump to $24.3 billion, beating out Agricultural Bank of China to become the biggest IPO worldwide.
At the high end of its IPO price range, Alibaba would bring in enough money to give it a market capitalization of $162.7 billion. That would make it larger than Amazon, but less than half the size of Google’s massive market value.
Alibaba’s stats sound huge in its prospectus: its 279 million shoppers bought $248 billion in gross merchandise volume sold. Its mobile sales expanded 100% last year. Those are impressive figures.
Much further down, on page 94, Alibaba records its most recent annual revenue: $8.5 billion.
That beats out only Facebook (FB) (see chart below). Amazon brought in almost 9 times that much in its most recent fiscal year. (Wal-Mart’s (WMT) figures, not shown on the chart, dwarfed everyone at $245.7 billion.)
The comparison is not exactly apples-to-apples. Alibaba’s business model is similar to that of Ebay, in that it is a middleman coordinating sellers and buyers. Alibaba doesn’t house and manage any products itself. Gross merchandise volume, the metric the company likes to highlight, is the total sum of goods and services transacted on all its sites.
Alibaba’s revenue is the cut it takes out of each sale. In comparison, Wal-Mart’s nearly $250 billion in revenue represents the total value of all the goods purchased along with its built-in margins.
This shows how complicated it is to value Alibaba. While Fortune’s Shawn Tully points out that Alibaba would have to grow at breakneck speed to justify its IPO price, others are arguing that Alibaba at $66 a share is cheap. And others, such as short seller Carson Block, are outright critical of Alibaba’s business model.
No matter how the IPO shakes out, there will be at least one big winner next week: Yahoo (YHOO). The company’s 22% stake in Alibaba is worth at least $31.4 billion, at the low-end of the IPO range, and will likely be worth much more once the stock hits the market.