Alibaba Holding Group’s initial public offering was a monster success, roaring out of the gate Friday at a 38% premium to its offer price, sucking $21.8 billion into the Chinese online powerhouse’s coffers.
The largest U.S. IPO ever sent thrills through the New York Stock Exchange, where the stock opened at $92.70, soared near $100, and thudded back down before closing at $93.89. It showered $900 million cash on Jack Ma, Alibaba founder and executive chairman.
The company’s market value came to $231.4 billion by day’s end.
“It was important for their worldwide image to have a successful IPO, and the best way to do that is have it go up on the offering,” said Francis Gaskins, research director at Equities.com. “This was very well planned and well executed. It’s amazingly stable for a $21-billion IPO.”
Alibaba’s IPO dwarfed that of Facebook Inc.'s. When the world’s largest social network went public two years ago it raised $16 billion, giving it a market value of $104 billion. Facebook was valued at nearly $201.6 billion at Friday’s close.
Alibaba is often compared with EBay, but its interests are much wider. The operator of shopping websites that link buyers and sellers also has tentacles in banking, maps, cloud computing, an online music service, and TV and film production.
Now, with their pockets brimming, Ma and Alibaba can turn their attention back to making their giant company even bigger.
The success also translated to a big — and badly needed — win for Yahoo Inc., which was an early investor in Alibaba and owned a 23% stake until cashing out 140 million shares. Yahoo, which still owns 384 million shares of Alibaba, should net about $5.9 billion after taxes.
Wall Street’s gossip mill buzzed with chatter on how Yahoo Chief Executive Marissa Mayer might spend all that cash — perhaps a big acquisition? Maybe AOL?
“They’re probably going to waste it,” cracked Eric Jackson, founder and managing partner at Ironfire Capital, a longtime Yahoo critic.
Other analysts were less harsh, but still skeptical. Mayer has bought a string of small companies, but the new wad of cash offers a chance “to do something bigger,” said Colin W. Gillis of BCG Financial.
Yahoo, he said, “has ample traffic, but the problem is making money from it. Do you push into more video? Do you throw cash at hot properties of the moment?”
Yahoo retains a world-recognized brand name. It’s an Internet pioneer, creator of the world’s first popular search engine. But some critics have charged it has spent willy-nilly on a string of properties that don’t fit together.
Meanwhile, it has fallen behind on its core business of search and mail.
The stock price is up under Mayer’s watch, however, and that’s where Alibaba comes in. Shareholders like Jackson have pressured the company for years to sell Alibaba stock and give the cash to shareholders.
Yahoo declined to comment on the talk of an acquisition, but it congratulated Alibaba.
“Yahoo has enjoyed a nine-year relationship with Alibaba, and we remain major investors in the company,” Mayer said. “We’d also like to thank our co-founder, Jerry Yang, for identifying and pursuing this wise investment.”
Alibaba was founded in 1999 by a group of 18 people, led by Ma, a former English teacher from Hangzhou, a city near Shanghai.
Although it is relatively unknown in the U.S., Alibaba raised its profile considerably with the IPO, and hopes to become a household name soon.
Unlike many tech companies that go public with little to no profit, Alibaba was already an uber-successful juggernaut by financial standards.
Last month, the Hangzhou company reported a surge in mobile growth and big gains in the quarter that ended June 30.
The company — which handles more sales than Amazon.com Inc. and EBay Inc. combined — said profit nearly tripled to $2 billion.
Active online buyers increased to 279 million, Alibaba said, 51% more than in the year-earlier quarter and a 9% gain from the January-through-March quarter.
Alibaba is particularly strong in mobile. The company revealed that 32.8% of its gross merchandise volume was transacted via mobile devices, up from just 12% a year earlier. And it more than doubled its mobile revenue from the previous quarter.
The number of mobile users has also soared: Alibaba said it had 188 million mobile monthly active users in June, up from 163 million in March.
During the company’s IPO road show, Ma hinted that the company would ramp up its U.S. business after the IPO.
“I feel excited and honored and I also feel very humbled; and very important that it’s a great blessing from the world, and we are so excited by the trust we got today,” Ma told Fox Business Network on Friday.
“We have a lot of things that we are eyeing and doing things to expand our ecosystem because today, it seems we are pretty big in China, but compared to tomorrow, compared to the world, we are still tiny.”