BV-Alibaba-COVER BV-Alibaba-02.09.14-structure Reuters

Breakingviews has been closely following Alibaba’s journey towards an initial public offering for over a year. Back in April 2013, we started  digging into what the company might be worth. The article that opens this  collection is the result. To see how our view has evolved since then, check  out the piece that closes this book, “Six steps to Alibaba’s twelve-figure valuation”. PETER THAL LARSEN

Alibaba’s main business is selling. Its Tmall online stores provide a shop front for brands like Nike and Unilever, while Taobao is focused on consumer-to-consumer trade. The closest U.S. peers might be Amazon and eBay. Sadly for valuation purposes, there’s no perfect match: unlike Amazon, Alibaba doesn’t hold inventory or manage warehouses, and unlike eBay, it gets most of its revenue from advertising, not charging users. JOHN FOLEY

Alibaba has spotted hidden treasure in Sina Weibo’s social network. The e-commerce giant is paying a punchy price for roughly 18 percent of China’s microblogging phenomenon, a business that has not yet celebrated its fourth birthday and is still working out how to generate revenue. Alibaba has taken a positively contrarian view of Weibo’s worth. The $586 million investment implies a valuation of $3.26 billion – close to the entire pre-announcement market value of Sina Corp, Weibo’s parent company. The implication is that Sina shareholders are putting no value on the company’s existing web portal business and $700 million in cash and short-
term investments. If Alibaba is right, the 9 percent jump in Sina shares on the news is far too stingy. PETER THAL LARSEN

SoftBank’s investment in Alibaba must be one of the most successful of all time. Billionaire chief Masayoshi Son injected just $20 million into the Chinese e-commerce giant in 2000. Today, the 36.7 percent shareholding accounts for a large chunk of Japanese group’s market value. As Alibaba heads toward an initial
public offering, however, Son’s investment blessing may become a burden. The owner of online shopping sites Taobao and the Alipay electronic payment system is still a private company. Based on its limited financial disclosures, Breakingviews estimates it is worth around $113 billion. That values SoftBank’s stake at $41 billion, or 38 percent of the Japanese group’s total sum of the parts, according to a new Breakingviews calculator. UNA GALANI

Alibaba boss Jack Ma is busy preparing for a U.S. initial public offering, potentially valuing his company at more than $100 billion. But if he really wants to make it big in America, he may have to buy his way in. There are at least two deals he could strike. Buying Yahoo would tidy up some corporate and tax-related loose ends as well as providing a U.S. bridgehead. The stronger industrial logic, though, could eventually suggest a tilt at eBay. Ma’s goal early on was for Alibaba to become a top-10 internet firm and last 102 years. In 2011, he hinted at interest in Yahoo. At the time, Alibaba wanted to reduce foreign ownership and Yahoo’s valuation was
depressed. The U.S. search firm’s stake is now smaller and its stock richer. Ongoing efforts to make acquisitions in China and take small stakes in U.S. companies with relevant technology, along with going public, may mean Ma has enough on his plate without the financial and political risks of a big American transaction.

How do you value a tech company? What about a dominant, fast-growing, profitable tech company with no peers that operates in an opaque  economy? Fund managers need to decide as Alibaba kicks off the roadshow for its long-awaited initial public offering. Breakingviews offers a six-step guide to sizing up China’s biggest e-commerce group. PETER THAL LARSEN

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