Bigger than Facebook: China's e-commerce giant prices stock on Wall Street

The stock is expected to start trading today under the ticker “BABA” on the NYSE. The IPO values Alibaba at $167.62 billion. That is bigger than the current market value of Amazon, Cisco, and eBay.

The company has enjoyed a surge in US popularity over the past two weeks as investors met executives, including its colourful founder Jack Ma.

As part of the so-called roadshow, would-be investors heard a sales pitch that centred on Alibaba’s strong revenue growth and seemingly endless possibilities for expansion.

Demand has been so high that the company raised its expected offering price to $66 to $68 dollars per share from $60 to $66 per share on Monday, setting the stage for what is expected to be the biggest ever IPO.

Alibaba said it is offering 320.1 million shares for a total offering size of $21.77bn. Underwriters have a 30-day option to buy up to about 48 million more shares. That means the offering size could be as much as $25bn.

The main reason investors appear breathless about the 15-year old Alibaba is that it offers an investment vehicle that taps into China’s burgeoning middle-class.

Alibaba’s Taobao, TMall and other platforms account for some 80% of Chinese online commerce. Most of Alibaba’s 279 million active buyers visit the sites at least once a month on smartphones and other mobile devices, making the company attractive to investors as computing shifts away from laptop and desktop machines.

And the growth rate is not expected to mature any time soon. Online spending by Chinese shoppers is forecast to triple from its 2011 size by 2015. Beyond that, Alibaba has said it plans to expand into emerging markets and eventually, Europe and the US.

“There are very few companies that are this big, grow this fast, and are this profitable,” said Wedbush analyst Gil Luria.

Alibaba operates an online ecosystem that lets individuals and small businesses buy and sell. It doesn’t directly sell anything, compete with its merchants, or hold inventory.

“The business model is really interesting. It’s not just an eBay, it’s not an Amazon, it’s not a Paypal. It’s all of that and much more,” said Reena Aggarwal a professor at Georgetown.

Like China’s consumer and Internet market, Alibaba is still growing rapidly. The company’s revenue in its latest quarter ending in June surged 46% from last year while its earnings climbed 60%, after subtracting a one-time gain and certain other items.

In its last fiscal year ending March 31, Alibaba earned $3.7bn, making it more profitable than eBay and Amazon combined.

Alibaba, is based in Hangzhou in Eastern China, Mr Ma’s home town. The company started in 1999 when Ma and 17 friends developed a fledgling e-commerce company on the cusp of the Internet boom.

Today, Alibaba’s main platforms are its original business-to-business service Alibaba.com, consumer-to-consumer site Taobao and TMall, a place for brands to sell to consumers.

And while there is plenty of growth left in China, Mr Ma has recently hinted about plans to expand beyond those borders.

“We hope to become a global company, so after we go public in the U.S., we will expand strongly in Europe and America,” he said on Monday.

The IPO’s fundraising target handily eclipses the $16bn Facebook raised in 2012, the most for a technology IPO.

It also tops the all-time IPO fundraising record of $22.1bn set by the Agricultural Bank of China in 2010, according to the research firm Dealogic.

Alibaba is offering up to 368 million shares, about 15% of the roughly 2.5 billion that will be outstanding after the IPO.

Alibaba plans to sell 123 million of those shares itself. The rest will be offered by the company’s early investors, including Yahoo Inc., which is parting with some of its 22% stake.

Although the IPO is likely to be the biggest in history, some analysts think the pricing is conservative.

Wedbush’s Luria gives the stock a one-year price target of $80. And research firm PrivCo said the stock is worth $100 a share because of all of the private companies that Alibaba has taken stakes in.

Today, Alibaba and its bankers will try to avoid mishaps like the ones that plagued Facebook’s stock debut on the Nasdaq in May 2012.

The social networking company’s first day of trading was marred by technical glitches. Despite an IPO that was hyped even more than Alibaba’s, Facebook’s stock closed just 23 cents above its $38 IPO price on that first day and later fell much lower.

The stock took more than a year to climb back above $38.