Published on 22.03.2024

Alibaba Stock

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Alibaba stock price

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Alibaba's IPO

Alibaba Group made its debut on the New York Stock Exchange (NYSE) on September 19, 2014, under the symbol BABA. The IPO generated significant interest. Initially, Alibaba aimed to raise $21.8 billion, but additional shares entered the market after the overallotment option had been exercised, known as ‘a greenshoe option’. Consequently, the proceeds reached $25 billion. This made Alibaba's IPO the largest at that time. Investors subscribed at a price of $68 per share and the stock closed at $93.89 on the first day of trading. At IPO price, the company was valued at $231.4 billion, surpassing other major tech companies like Facebook and Amazon at the time.

In late 2019, the Chinese internet giant secured a secondary listing on the Hong Kong Stock Exchange (HKEX:9988). This listing also attracted significant interest from both retail and institutional investors. Alibaba raised around €10.3 billion in fresh funds during the IPO. To attract Alibaba, the Hong Kong exchange eased listing requirements and allowed shares with different voting rights. This provided Alibaba's founders with additional voting power. For investors, the New York-listed Alibaba shares, or ADRs, offer more liquidity due to the trading volume.

Company strategy and future

Alibaba considers Amazon its major inspiration. Like the US e-commerce giant, Alibaba aims to dominate large portions of the internet and establish a position as a cloud provider. Alibaba launched Aliyun, also known as AliCloud, in response to Amazon Web Services (AWS). Amazon's cloud division is highly profitable and essentially finances the company's e-commerce activities. Alibaba also aims to make Aliyun a strategic pillar, although it has faced headwind and restrictions from Beijing.

The Communist Party has viewed data as an essential production factor, comparable to land and fuel. As a result, data security is a priority for the government. This has recently been highlighted as Tesla cars have previously been banned in certain Chinese cities due to security concerns. Consequently, government institutions and state banks in China have chosen to partner with cloud providers with close governmental ties, such as Huawei and China Telecom. This has been at the expense of Aliyun's expansion. To reverse this downward trend, Aliyun introduced new services such as a Dropbox-like offering and DingTalk, a mobile app for business communication.

With its e-commerce activities, Alibaba's primary goal was to stimulate growth outside of China, aiming to generate half of its revenue beyond its own borders.

History of Alibaba

Alibaba was founded in 1999 by former English teacher Jack Ma, from his apartment in Hangzhou, China. Under his leadership, Alibaba grew to become one of the largest online retailers in the world. In 2021, Alibaba became the largest e-commerce company, reaching 1.3 billion active customers, compared to JD.com's 552 million. The Alibaba Group includes platforms like AliExpress and Taobao, the most popular Chinese online marketplace. Additionally, the company provides cloud services and has investments in areas such as TV studios, newspapers and social media. Alibaba also holds a minority stake in Weibo, the Chinese equivalent of X, formerly known as Twitter.

In Ma's surroundings, no one would have expected him to become the head of China's largest internet company. As a young boy, he dreamt of becoming a police officer, scientist or soldier. Due to his small, slender build, he was bullied in school. However, Ma was a fighter and didn't hesitate to stand up to larger opponents. Between the ages of 12 and 21, the young Ma cycled 45 minutes every day to the Hangzhou Hotel, where he gave guided tours to American tourists. From these Americans, he learned to speak English well.

Consequently, after his graduation in 1988, he began working as an English teacher. In 1995, he left his teaching job and founded China Pages, one of the first Chinese internet companies connecting Chinese and foreign businesses. However, the company was not able to become a success story. Chinese companies showed limited interest in the internet at that time and saw no value in sharing their business information online. To secure his future, China Pages merged with the government-owned Hangzhou Telecom. For Ma, government interference was a reason to seek opportunities elsewhere.

He managed to raise a total of $80,000 from 80 investors and used it to establish Alibaba. The internet company grew rapidly, but its success was threatened by the entry of foreign players into the Chinese e-commerce market. eBay, for instance, entered China in 2002. Over the following years, this American giant secured a dominant market share of 85%. Ma responded by launching an online marketplace: Taobao. In the initial years, sellers could place free ads on the site and no transaction fees were charged. Consequently, the number of online stores on Taobao increased rapidly, attracting a lot of consumer interest. Within two years, Taobao captured a market share of over 60%. In 2006, eBay left China with its tail between its legs.

Conflict with Beijing

The success of the Alibaba Group made Ma one of the wealthiest individuals in China. Over the years, his role in the company became less significant. He stepped down as CEO in 2014 and also resigned from his role as executive chairman in 2018. Through the Jack Ma Foundation, he focuses on philanthropic projects in education. Ma frequently clashes with the Chinese government. After a critical speech in 2020 where he criticised Chinese regulators and state banks, he disappeared from the public eye for months. Beijing accused Alibaba of abusing its power and engaging in price manipulation, leading to the cancellation of the planned IPO of Ant Group, Alibaba’s financial arm that includes payment service Alipay.

Succumbing under government pressure, the Ant Group transformed into a financial holding company to allow for stricter regulatory oversight. The company was also forced to cancel certain expansion plans and cooperate in curbing the market dominance of online payments. This fits Beijing's policy of reining in tech companies. Due to the lack of regulations, major Chinese internet players like Alibaba, Tencent and Baidu were able to grow rapidly and establish dominant market positions. This has been a concern for Beijing, especially as these companies have also developed a range of financial services. Because the tech giants are not subject to the same stringent capital requirements, Chinese banks complained about unfair competition. With increased regulation, the Chinese government aims to curb the growing dominance of the tech sector.

Dividend from Alibaba

Alibaba does not pay dividends.

The information in this article is not written for advisory purposes, nor does it intend to recommend any investments. Please be aware that facts may have changed since the article was originally written. Investing involves risks (e.g., price volatility, currency or liquidity risk). You can lose your invested funds. Consider your knowledge and experience when making investment decisions. Past performance is not a reliable indicator of future results. Markets are volatile and can fluctuate significantly due to economic, political, regulatory, or other developments.

Sources: Alibaba, Bloomberg, FT, FD

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