Alibaba IPO: A Threat To eBay, Yahoo, And Amazon!
Alibaba, the biggest eCommerce company in China, recently became the biggest in the world. Alibaba today handles more business than the other competing eCommerce companies. Although the company operates primarily in China, the Alibaba IPO created history on September 19, 2014.
Last year, Alibaba sought an Initial Public Offering or IPO in the US when a deal did not turn out with the Hong Kong regulators. The planning was done twelve months before market debut in September 2014.
Initial Public Offering (IPO)
The Hangzhou based Alibaba Group Holding Limited, founded in 1999, set a price range of US $60 to US $66 per share for its scheduled IPO on September 5, 2014. The final price was to be decided post an international road show. Ma maintained that the aim of the road show was to measure investor interest in the shares of Alibaba.
On September 18, 2014, Alibaba IPO at US $68 raised an amount of US $21.8 billion. The eCommerce company became the biggest US IPO historically. Additional shares were then bought by the bankers of Alibaba. In doing this, the company actually surpassed its record of US $22.1 billion raised by the Agricultural Bank of China in the year 2010.
Alibaba grounded several records on Friday as its trading volume far surpassed that of the stock sale of Twitter. Presently Alibaba is worth more US $223 billion, which is more than eBay, Amazon, and Facebook.
Effect on Amazon, eBay and Yahoo
The US market of Amazon, eBay, and Yahoo are likely to suffer the brunt of Alibaba IPO. Yahoo’s 24% stake in Alibaba seems to augment its shares. The Taobao auction site has already devastated the China plans of eBay.
A challenge to Yahoo
Yahoo owns almost one-fifth of the world’s businesses, a stake which is about US $35 billion. And the company is most likely to be beaten down as a consequence of the historic Alibaba IPO. According to the agreement signed, 27% of Yahoo’s stake will be sold to Alibaba at the IPO. When the stakes are sold, Yahoo shares would soon lose something that so long excited the investors this year- Alibaba. Marissa Mayer, the CEO of Yahoo, would soon be under pressure to use the proceeds of the investment made with Alibaba for future.
Amazon could suffer huge loss
“For every dollar in sales, Alibaba makes $0.43 in gross profit. In contrast, Amazon just $0.01”, tweets Abe Garver, the American M&A investment banker. This is an eminent threat that Amazon suffers at the hands of the Chinese eCommerce giant Alibaba. Amazon would most likely be beaten down by AliExpress.com.
So far Alibaba remained within the confines of China only. The eCommerce company however, following the historic IPO and its US entry, has emerged to be a threat to Amazon. The company has already made a number of acquisitions of varied technology companies which has offered it a good portfolio. Taobao is an online site that has been fashioned after eBay. AliExpress is a factory-direct marketplace. Tmall is another online company with brands like Burberry, Apple, and Nike.
The most prominent assault of Alibaba into America’s market is the launch of 11Main.com. In contrast to the utilitarian site Amazon, 11Maijn.com is a flash sale site like Gilt and Etsy. The products sold by AliExpress.com, a subsidiary of Alibaba, are of a lower quality than those sold at Amazon. However, AliExpress offers huge discounts on a number of items sold on Amazon at higher prices.
Although, Alibaba IPO seems to spell doom for the US eCommerce giant, Alibaba needs to work hard in order to take over the market from Amazon completely.
What could be eBay’s fate?
The most prominent blow that eBay has received from Alibaba is complete wipe out of its ambitions in China. Within five years after the launch of Taobao in 2003, around 80% of China’s online auction market was taken over by it. Taobao, which is a consumer-to-consumer portal, used three simple strategies to gain ground in China.
First, Taobao depended on an extensive advertisement campaign as compared to eBay’s advertising contracts with the big Chinese websites. Second, Taobao did not price the sellers which eBay did. Customers therefore flocked to Taobao from eBay. Last, Taobao offered an online payment, insurance, delivery service, and escrow called AliPay. eBay’s PayPal system and An FU Tong payment service was more confusing to the Chinese customers.
There are chances that eBay might just fall prey to better execution of Alibaba in the US market as well. With a war chest of billions Alibaba will now surely look to expand aggressively in the US market through both organic growth and acquisitions.