Alibaba Group Holding Limited

IPO ANALYSIS (FINANCIAL MANAGEMENT)

Mehran Mubashir
Muzammil A. Shakeel
Rohaan Ahmad Sheikh
Introduction
Mission of the company

“Our mission is to make it easy to do business anywhere.”

Their founders started company to champion small businesses, in the belief that the
Internet would level the playing field by enabling small enterprises to leverage innovation
and technology to grow and compete more effectively in the domestic and global
economies. Their decisions are guided by how they serve that mission over the long-term,
not by the pursuit of short-term gains.

Vision of the company

“We aim to build the future infrastructure of commerce. We envision that our
customers will meet, work and live at Alibaba, and that we will be a company that lasts at
least 102 years.
Meet @ Alibaba. We enable millions of commercial and social interactions among
our users, between consumers and merchants, and among businesses every day.
Work @ Alibaba. We empower our customers with the fundamental infrastructure
for commerce and data technology, so that they can build businesses and create
value that can be shared among our ecosystem participants.
Live @ Alibaba. We strive to expand our products and services to become central to
the everyday lives of our customers.
102 Years. For a company that was founded in 1999, lasting at least 102 years
means we will have spanned three centuries, an achievement that few companies
can claim. Our culture, business models and systems are built to last, so that we can
achieve sustainability in the long run.”

Business of the company

We are the largest online and mobile commerce company in the world in terms of
gross merchandise volume in 2013, according to industry sources. We operate our
ecosystem as a platform for third parties, and we do not engage in direct sales, compete
with our merchants or hold inventory.

We operate Taobao Marketplace, China’s largest online shopping destination,

Tmall, China’s largest third-party platform for brands and retailers, in each case in terms
of gross merchandise volume, and Juhuasuan, China’s most popular group buying
marketplace by its monthly active users, in each case in 2013 according to iresearch.
These three marketplaces, which comprise our China retail marketplaces, generated a

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combined GMV of RMB1,542 billion (US$248 billion) from 231 million active buyers
and 8 million active sellers in the twelve months ended December 31, 2013. A significant
portion of our customers have begun transacting on our mobile platform, and we are
focused on capturing this opportunity. In the three months ended December 31, 2013,
mobile GMV accounted for 19.7% of our GMV, up from 7.4% in the same period in the
previous year.

In addition to our three China retail marketplaces, which accounted for 82.7% of our
revenues in the nine months ended December 31, 2013, we operate Alibaba.com, China’s
largest global online wholesale marketplace in 2013 by revenue, according to iresearch,
1688.com, our China wholesale marketplace, and AliExpress, our global consumer
marketplace, as well as provide cloud computing services.

As a platform, we provide the fundamental technology infrastructure and marketing

reach to help businesses leverage the power of the Internet to establish an online presence
and conduct commerce with consumers and businesses. We have been a leader in
developing online marketplace standards in China. Given the scale we have been able to
achieve, an ecosystem has developed around our platform that consists of buyers, sellers,
third-party service providers, strategic alliance partners, and investee companies. Our
platform and the role we play in connecting buyers and sellers and making it possible for
them to do business anytime and anywhere is at the nexus of this ecosystem. Much of our
effort, our time and our energy are spent on initiatives that are for the greater good of the
ecosystem and the various participants in it. We feel a strong responsibility for the
continued development of the ecosystem, and we take ownership for this development.
Accordingly, we refer to this as “our ecosystem.”

Our ecosystem has strong self-reinforcing network effects that benefit our
marketplace participants, who are invested in our ecosystem’s growth and success.
Through this ecosystem, we have transformed how commerce is conducted in China and
built a reputation as a trusted partner for the participants in our ecosystem.

We have made significant investments in proprietary technologies and infrastructure

in order to support our growing ecosystem. Our technology and infrastructure allow us to
harness the substantial volume of data generated from our marketplaces and to further
develop and optimize the products and services offered on our platform.

Primary Revenue Stream

Our revenue is primarily generated from merchants through online marketing

services (via Alimama, our proprietary online marketing platform), commissions on
transactions and fees for online services. We also generate revenues through fees from
memberships, value-added services and cloud computing services. In the nine months
ended December 31, 2013, we generated revenue of RMB40.5 billion (US$6.5 billion)
and net income of RMB17.7 billion (US$2.9 billion). Our fiscal year ends on March 31.
What the company has achieved over the years before IPO.

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The size and scale:

The Scale and size of their Ecosystem Participants:

The chart below depicts the network effect dynamic in their ecosystem.

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 The following chart sets forth our key marketplaces and services and the core related
companies and affiliates in our ecosystem:

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Reasons for going public
Alibaba is china’s answer to amazon in the trade war which has been going on between
USA and China. This company has 70% market share, which is the biggest, in the e-
commerce market. It can be expressed as all, amazon, PayPal and eBay of china
combined.
1. Control
First choice of Alibaba to go public by jack ma was to present the IPO in Hong Kong but
this was not completed due to some issues. One of the issues was the issue of control. By
giving out shares in the Hong Kong market, so much control of the company was being
given to the shareholders and Alibaba didn’t want that. So, the shares were floated out in
NYSE instead. The control there was maintained using different classes of stock. This
allows to raise capital without giving much control, such as the voting rights, to the
shareholders. So, by going to the NYSE, control of the company was maintained while
capital was also raised through stocks.
2. Reputation
There is a unique prestige in being a NYSE listed company. Being listed there means a
good reputation of the company. A lot of paperwork is required when you are listed in
NYSE. This paperwork is regulated under the supervision of SEC. A certain level of
quality is maintained in this way. This enables the shareholders to trust the companies
more which are listen in NYSE. This makes them invest more in those companies.
3. Investor payback
Jack ma wants to pay back his lenders within a certain time frame. For this, capital can be
raised by going public and floating out shares.
4. Build brand awareness
When jack ma took his company to NYSE, this enabled him to introduce his company to
the world outside china. This provided awareness to the non-Asian people about
Alibaba’s services.
5. Gain currency
Going out public provides your company financial flexibility. You can do a lot with the
cash raised through stocks such as you can pay people, make acquisitions and expand
your business. Jack ma wanted the same for his company also. So, Alibaba went public to
raise money for itself.

The main risk factors of Alibaba Group

Following are the main risk which the company can face any time in its journey

Maintaining the trusted status of their ecosystem is critical to their success, and any
failure to do so could severely damage their reputation and brand, which would have a
material adverse effect on business, financial condition and results of operations.

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 1. User behavior on mobile devices is rapidly evolving, and if we fail to successfully
adapt to these changes, our competitiveness and market position may suffer.

2. They rely on Alipay to conduct substantially all the payment processing and
escrow services on its marketplaces. Alipay’s business is highly regulated, and it
is also subject to a range of risks. If Alipay’s services are limited, restricted,
curtailed or degraded in any way or become unavailable to them for any reason,
their business may be materially and adversely affected.

3. The company business generates and processes a large amount of data, and the
improper use or disclosure of such data could harm their reputation as well as
have a material adverse effect on their business and prospects

4. The company’s sellers use third-party logistics and delivery companies to fulfill
and deliver their orders. If these logistics and delivery companies fail to provide
reliable delivery services, or their logistics information platform were to
malfunction, suffer an outage or otherwise fail, their business and prospects, as
well as their financial condition and results of operations, may be materially and
adversely affected.

5. If third-party service providers on our ecosystem fail to provide reliable or

satisfactory services, our business, financial condition and results of operations
may be materially and adversely affected.

6. Security breaches and attacks against our systems and network, and any
potentially resulting breach or failure to otherwise protect confidential and
proprietary information, could damage our reputation and negatively impact our
business, as well as materially and adversely affect our financial condition and
results of operations.

7. We may become the target of anti-monopoly and unfair competition claims,

which may result in our being subject to fines as well as constraints on our
business

8. Our revenue and net income may be materially and adversely affected by any
economic slowdown in China as well as globally

9. We are subject to risks associated with our SME loan business.

10. We may be subject to allegations and lawsuits claiming that items listed on our
marketplaces are pirated, counterfeit or illegal.

Chronology of Events

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THREE MONTHS OR MORE BEFORE THE IPO

This is the registration form required by the Securities and Exchange Commission (SEC).

It’s the legal document that tells the world about the company’s plans for its proceeds, its
business model, the competition, and its corporate governance, risks, and executive
compensation.

Why does the company need to disclose so much information? The SEC wants as much
transparency as possible to make sure investors have enough information to make
intelligent investment decisions.

Once the SEC approves the document, and they are satisfied there have been enough
information and disclosures, the company can file a “public” S-1.

TWO TO THREE WEEKS BEFORE THE IPO

The company then launches a “road show,” a tour to meet investors, which can occur 21
days after the public S-1 is filed. At the start of the road show, terms for the IPO are
announced. The company will say they are seeking to sell, say, 10 million shares between
$20 and $23.

How do they determine the price and size? Typically, bankers will look at several
metrics, including the present value of a company’s cash flow, the value of the company
in relation to sales or cash flow, or the value of comparable competitors who are already
publicly traded.

The road show is a critical step in the IPO process. What investors attend a road show?
The whole spectrum: Hedge funds, mutual funds, banks, pension funds, endowment, and
individuals.

Labor Day holiday (Sept. 1)

No final decision has been made regarding the Alibaba IPO date, but Alibaba officials
have said they'll wait until after the Labor Day holiday (Sept. 1) to hold the massive
initial public offering.

ONE DAY BEFORE THE IPO

At the end of the road show, when the orders are all consolidated, the bankers will
announce a final price and deal size. Investors who put in bids to buy the stock will find
out how much they were able to buy, assuming the price was acceptable to them.

How do you determine the final price and size? It’s a little art, and a little science, but
demand is the most critical factor.

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The day after the stock is priced, the company goes public ... Hopefully. There’s one
other factor that plays into a company’s decision on when to go public: Market
conditions. Sometimes, the stock market is in turmoil. You don’t want to go public if you
can avoid it when that happens, because it may hurt how the stock trades on the first day.

DAY ZERO: IPO!

One day 18 September before the IPO the price set was $68 per share but the market
opens on 19 September with $92.70 per share and quite successfully it raised $21.8bn.
After three days of offering 22 September the underwriters announced based the demand,
they are going to use green shoe option which will sale 15% more shares than planned
hence raised total $25bn, about 368 million shares were sold in total in those days.
IPO PLUS 25 DAYS

Investment banks who are part of the underwriting team cannot publish research until 25
days after the company goes public; 40 days in the case of big companies like Alibaba.
However, investment firms that are not part of the underwriting process can publish
research at any time.

IPO PLUS 6 MONTHS

The “lockup” period for most companies ends, and insiders are free to sell shares.

This is a convention, however, not a rule. Alibaba, for example, has a tiered lockup. For
insiders with small amounts of stock the lockup ends after 90 days, and for all others ends
after 180, except for Jack Ma and a few other executives
(including Yahoo and Softbank), which have a one-year lockup.

IPO Share Performance

IF YOU HAD INVESTED $10,000 IN ALIBABA'S IPO...

$10,000 was enough to buy 147 shares of Alibaba in 2014. Alibaba's stock trades at
nearly $200 as of this writing, so your investment would now be worth over $29,000.
Alibaba's IPO arrived less than four months after its biggest
rival, JD.com (NASDAQ:JD), went public in the U.S. JD made its public debut at $19
per share on May 24, 2014, and raised a more modest $1.8 billion. If you had spent
$10,000 on JD's IPO instead, your investment would be worth about $16,800 today.
Alibaba outperformed JD over the past five years for three reasons.
First, Alibaba's business was less capital-intensive than JD's. Alibaba generates most of
its revenue from high margin listing and advertising fees on its marketplaces. It doesn't
stock any inventory and relies on third-party logistics platforms to fulfill its orders. JD is
a direct retailer that takes on inventories and fulfills orders with its own warehouses and

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logistics services -- which gives it tighter control over its platform but reduces its
operating margins.

Second, Alibaba aggressively expanded into other markets like cloud services, streaming
media, and smart speakers. Those moves tethered more users to its ecosystem, gave it
fresh growth engines, and widened its moat against other tech giants
like Baidu (NASDAQ:BIDU) and Tencent (OTC:TCEHY). JD mainly focused on
improving its core JD Mall platform and scaling up its logistics services.

Lastly, JD's stock plunged in late 2018 after founder and CEO Richard Liu was accused
of rape in the U.S. The charge was eventually dropped, but JD's stock still hasn't fully
recovered -- even after its revenue growth accelerated for two straight quarters. Alibaba
also faced a few setbacks, including Taobao's addition to the U.S. trade blacklist
of "notorious" counterfeit marketplaces, but it didn't struggle with any headline-
dominating scandals like JD.

Consolidation of financial Reports

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Conclusion

According to the above data and analysis you should look forward to invest in Alibaba
and know about the following good things:

1.Alibaba is already 20 years old and it has both b2b business as well as b2c and c2c
because the ecosystem it provides is very robust.
2. Alibaba’s most profitable business is in commerce which generate about 85% of its
revenue and subsidies its other business (cloud, digital media and entertainment, and
innovation initiatives) which will generate more profit in long term.
3. Alibaba is also expanding its brick-and-mortar footprint with 170 Freshippo cashierless
grocery stores across China. It also owns a major stake in Sun Art, the country's top
grocery chain, and 485 of its stores are already linked to its delivery services.

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4. Alibaba is expanding overseas
Back in September, Alibaba declared that it served about 860 million active customers
worldwide, including 730 million in china and 130 million in its cross-border and
overseas marketplaces. It predicted that the total would top one billion by the end of
2024.
5. Alibaba is one of the biggest cloud players in the world
Alibaba cloud, which generated 8% of its revenue last quarter, is the largest cloud
infrastructure platform in china with a 47% market share, according to canalys. It's also
the leading cloud platform provider in the Asia-pacific region, according to Gartner, and
the third largest in the world after amazon web services (aws) and Microsoft's azure.
6. A jack of all trades, and a master of many
Alibaba is still primarily an e-commerce company, but investors should realize that it's
also a top player in the cloud, advertising, ai, and smart device markets. Its leading
positions in those markets, along with its robust growth rates and a surprising low
valuation, make Alibaba a top long-term play on china's growth.

References

https://www.sec.gov/Archives/edgar/data/1577552/000119312514184994/d709111df1.htm#toc
709111_2

https://www.forbes.com/sites/niallmccarthy/2018/08/23/china-now-boasts-more-than-
800-million-internet-users-and-98-of-them-are-mobile-infographic/#28e3de537092

https://moneymorning.com/2014/08/13/alibaba-ipo-date-follow-this-timeline-for-major-
upcoming-events/

https://www.alibabagroup.com/en/about/leadership

https://www.google.com/search?
q=alibaba+on+nyse&rlz=1C1NDCM_enPK839PK839&oq=alibaba+on+nyse+&aqs=chrome..
69i57j0l7.12504j1j7&sourceid=chrome&ie=UTF-8

https://www.fool.com/investing/2019/12/04/if-invested-10000-alibaba-ipo-how-much-
have-now.aspx

https://www.alibabagroup.com/en/news/press_pdf/p190815.pdf

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