Alibaba's IPO: Roaring and Ridiculously Big

Alibaba logo - moneyAlibaba Group Holding Limited is now a publicly traded company. The Hangzhou-based group of internet-based e-commerce businesses debuted its IPO on September 19th, 2014. The IPO initially raised $21.8 billion, making its market value measured as $231 billion.

Alibaba's business include business-to-business (B2B) online web portals, online retail and payment services, a shopping search engine and data-centric cloud computing services. The company's total revenue has beaten its western competitors eBay and Amazon, combined. Alibaba sought an IPO in the U.S. after an unsuccessful deal with Hong Kong regulators.

On 5th of September, the group was filing with the U.S. Securities and Exchange Commission to set a $60- to $66- per-share price range for its IPO, with the final price determined after an international roadshow. The listing on the New York Stock Exchange (NYSE) has made Alibaba one of the largest technology listing in U.S. history, exceeding Facebook.

And if compared with other internet companies, Alibaba's IPO is expensive because it's asking for it, and it's also because the company is seen to be able to do it. With the debut about 17 times sales in the year through June, far beyond Amazon at 1.96 times and eBay at 3.92 times, Alibaba is also beyond the reach of other Chinese internet companies: Tencent Holdings Ltd (13.53 times) and Baidu Inc. (12.24 times).

The valuation itself won't stop investors who are drawn to Alibaba's potential. As a Chinese company, Alibaba is seen to be attractive to investors because of the exciting internet opportunities in China are at the moment, and because that opportunity itself is not fully discovered. And because the potential is not fully unearthed yet, Alibaba needs to be conservative to keep the concerns low.

Alibaba has fortunes that surged along with China's economy preferred to release its shares slow and steady. Facebook had a price tag of $104 billion at the time of its IPO in May 2012, but quickly lost half its market value as investors worried about slowing growth and the company's mobile strategy, before its stock recovered. Alibaba may temper its valuation to avoid the listing flop of Facebook.

Alibaba's shares (BABA) began trading on the NYSE at an opening price of $92.70 at 11:55am EST.

The IPO has made its founder and Chairman, Jack Ma, a former English teacher, a multi-billionaire that worth above $16 billion when he owns 7.8 percent of the company he founded in 1999. This places him into the top 10 richest people in tech industry, along Silicon Valley's Bill Gates, Larry Ellison, Mark Zuckerberg, and Larry Page and Sergey Brin.

Alibaba's Vice Chairman Joe Tsai holds a 3.2 percent stake.

"We believe one thing, today is difficult, tomorrow is more difficult, but the day after tomorrow is beautiful," said Ma in the company's presentation. "So we have to work very hard in order to survive the long journey."

With Yahoo! owning more than 22 percent of the company, the cash generated will be essential to the ongoing saga of CEO Marissa Mayer and Yahoo!.

Alibaba was valued at just a few billion dollars when Yahoo! acquired its stake in 2005, but it rose to $32 billion after Silver Lake Management LLC, Temasek Holdings Pte and DST Global came in.

After IPO, Alibaba relies on a legal structure known as variable interest entity (VIE), just like many other Chinese companies, because it's required by the Chinese government for foreign ownership of certain industries, including internet companies.