KWEB: Alibaba IPO Notes
Alibaba filed for its highly anticipated IPO on May 6th 2014. This could be the largest IPO in terms of capital raised since Facebook and will bring to market a company whose market capitalization would be larger than 95% of S&P 500 companies.Filing Takeaways
Alibaba did not specify the number or price of shares it will offer or what valuation it will seek. Those details will likely be provided closer to the actual sale.
The filing has a temporary $1 billion placeholder amount, which is used to calculate registration fees.
Alibaba’s filing begins a process that will take several months before it becomes a publicly traded company. The company will likely make revisions to its filing document and has announced it will meet with investors during a formal roadshow, after which a price for the shares will be set.
Alibaba’s market value is estimated by analysts to be $168 billion1, which as we mentioned would be bigger than 95% of the constituents of the S&P 500.
At current value estimates, Alibaba would be the second most valuable Internet company after Google which has a market cap of about $380 billion*. (Amazon.com is valued at $142 billion* and Facebook is valued at $162 billion*.)
Expectations are that the company is looking to sell about a 12% stake, which would make the offering around $20 billion based on the estimated value of $168 billion (Source: Bloomberg, Apr 2014).
NYSE or NASDAQ Listing?
The company still has to decide whether to list its shares on the New York Stock Exchange or NASDAQ Stock Market. Since Alibaba is not a U.S. company, it will not be eligible for inclusion in the S&P 500.
The NASDAQ-100 allows for the inclusion of foreign companies. As ETF Trends recently reported, Baidu, China’s largest Internet search provider, is a member of the NASDAQ-100, but not the S&P 500, although Baidu easily meets the market cap criteria to be an S&P 500 constituent.
It would still take several months before Alibaba could enter the NASDAQ-100. In a hypothetical example, if Alibaba goes public on the NASDAQ on June 15, it would not be eligible to enter the NASDAQ-100 until Oct. 1.
According to the index methodology of KWEB’s benchmark, the CSI China Overseas Internet Index, if the total A share market cap of an IPO ranks top 10 in the overall market and it satisfies the requirements of the index universe, then fast entry rules are applied.
KWEB, the only pure play China Internet/E-commerce ETF, expects to fast track Alibaba’s inclusion into the fund within 15 days after its listing, rather than waiting for the standard quarterly rebalance to be included.
There is no guarantee the mentioned IPO’s will be included in the index or fund
Alibaba Quick Facts
- In 2013 Alibaba processed 11.3 billion orders with a value of $248 billion, two-thirds more than Amazon and Ebay combined.
- As of end of year 2013 Alibaba has 231 million active annual buyers.
- Alibaba’s sales accounted for 84% of China’s online shopping in 2013.
- A big annual event for Alibaba occurs on Nov. 11, when the company conducts a huge online shopping sale that coincides with “Single’s Day” in China-where young Chinese lament or celebrate being single.
- 2013’s Single’s Day generated approximately $5.7 billion in sales, even though only about 45% of Chinese shoppers have access to the internet.
- 76 percent of all mobile retail in China in 2013 (not including virtual goods) came from Alibaba sites.
Alibaba Ownership Structure
- Founder Jack Ma 8.9%
- SoftBank 34.4% — No plans to sell shares
- Yahoo 22.6% — Has announced plans to sell shares in the IPO-potentially 40% of its shares
China Internet/E-Commerce Demographics
- China’s total population is estimated to be over 1.35 billion people
- In 2013 there were 302 million internet shoppers
- 613 million people have access to the internet as of 2013
- 500 million people in 2013 accessed the internet through their mobile phones
- Online shopping accounted for 7.9% of total China consumption in 2013
KWEB: KraneShares China Internet/E-Commerce ETF
- Expects to add Alibaba within days of the company’s IPO
- Currently owns 28 of the largest China internet/e-commerce focused companies as of 4/30/2014
- Listed on NASDAQ
- Provides access to the growing internet/mobile trends taking place in China
1.) Source: Bloomberg, Apr 2014
*Source: Google Finance, May 2014
Sources: iResearch, CNNIC, Bloomberg, Reuters