Alibaba Group Holding Ltd’s shares soared 38% in their first day of trading on Friday as investors jumped at the chance for a piece of what is likely to rank as the largest IPO in history, in a massive bet on China’s burgeoning middle class.
It was an auspicious debut for the Chinese e-commerce company, which was founded by Jack Ma in his apartment in 1999 and now accounts for 80% of online sales in China.
About 100 people gathered outside the New York Stock Exchange at Wall and Broad Streets, many of them Chinese tourists with cameras, and they cheered and snapped photos when Ma exited the building with the kung fu star Jet Li.
The stock opened at $92.70 shortly before noon ET and quickly rose to a high of $99.70, before paring gains to close at $93.89. Some 271 million shares changed hands, more than double the turnover on Twitter Inc’s first day last year, although still short of volume for the General Motors Co and Facebook Inc IPOs.
“This is the most anticipated event I’ve ever seen in my 20-year career on the floor of the NYSE,” said Mark Otto, partner with J. Streicher & Co, who trades on the NYSE floor. “I think today’s move is sustainable: The company is profitable, unlike some of its competitors, and it is a way for traders to tap into the Chinese growth story.”
The pricing of the IPO on Thursday initially raised $21.8bn for Alibaba. Scott Cutler, head of the New York Stock Exchange’s global listing business, told CNBC that underwriters would exercise their option for an additional 48 million shares, to bring the IPO’s size to about $25bn, making it the largest initial public offering in history.
But a source close to the matter said the underwriters would make a final decision on whether to exercise the option over the next week or two, based on how the shares trade over the next few sessions.
Alibaba is nearly unknown to most Americans but is ubiquitous in China. The company, which operates China’s largest Internet shopping destination, Taobao, and retail site Tmall.com, earned $3.7bn in the 12 months ended March 31, 2014, up about $2bn from the prior 12-month period.
At its closing share price on Friday, Alibaba has a market value of $231bn, exceeding the combined market capitalizations of Amazon and eBay, the two leading US e-commerce companies.
Alibaba is valued at 39 times its estimated earnings per share for its current fiscal year, which ends in March. That is right in line with Facebook’s valuation of 39 times forward earnings but nowhere near the lofty valuation of Amazon.com’s multiple of 264, according to Thomson Reuters Starmine data.
Trying to chart the stock’s future
The future path of Alibaba’s shares is truly uncharted territory.
“It’s very difficult to predict,” said Stephen Massocca, managing director at Wedbush Equity Management LLC in San Francisco. “Is it going to trade based upon its true fundamental value, or is it going to become one of these cult stocks a la Tesla or Solar City, or some of these names where there really isn’t a fundamental grounding to the valuation?
“And it’s very difficult to see what bucket these guys are going to fall into,” Massocca added. “My guess is there’s a very high likelihood it does fall into this bucket, which would lead you to believe it does trade higher. But if you were to base it on a fundamental valuation, I would call it slightly overvalued at this price.”
