Alibaba Ipo Listing

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Alibaba aims to expand.

• Gain trust of US investors – Listing in US will increase the cost of compliance and also bring Alibaba under the ambit of the Sarbanes Oaxley act. This will help Alibaba gain trust of US investors who have low confidence in Chinese accounting practices, especially when Alibaba wants to acquire firms in the US to compete with Amazon and Ebay on their home turf.

• US stock exchanges allow companies with dual class share structure to list on the exchange. As the partnership structure of Alibaba is a variant of the dual class share structure, the US stock exchanges allow for ease of listing. Moreover, the HKEx allows listing of companies with dual class share structure only under exceptional circumstances, and it will require extended negotiation with the HKEx to list under “exceptional circumstances”. Also, the IPO in US could be freely determines while in HK it required that the IPO remains within the initial price range. Also, as US investors valued internet companies with higher multiples, it would help Alibaba get a bigger valuation in the US stock exchange than the HKEx.

4) What is your valuation of Alibaba?

We proceeded with the evaluation using a multiple approach, and in order to do that we have considered similar companies in terms of business. In the case of Alibaba in terms of business operations the closest comparable would be Amazon, Groupon and Ebay (Note: column EV/EBITDA presents an asterisk “*” since historical data for each firm have been extracted from the following website: http://www.gurufocus.com/)

EV/EBITDA*on Dev 2013 Forward P/E on Dec 2013

Amazon 45.07 143.91

Groupon 40.06 40.96

Ebay 5.03 16.42

Average 30.05333333 67.09666667

Ebitda on Dec 2013 (Mil) Net Income on Dec 2013 (Mil)

Alibaba 3836$ 2820$

EV estimate (Mil) - Using average EV/EBITDA 115284.6$

EV estimate (Mil) - Using average P/E 189212.6$

In order to reach a comprehensive range for the enterprise value at the moment of the IPO, we calculated the average for the ebita multiple and the P/E multiple. After that, we multiplied the average ebita multiple for the Ebitda in order to find the Enterprise value.

Same process by using the P/E multiple, however in this case we have multiplied by the net income.

In conclusion our evaluation ranges from 115 to 189 billions.

As a measure of sensitivity, we also followed the analyst comment present on the cases: “Alibaba as a mixture of retailers like Amazon and eBay, Financial Services like Paypal and search engine like google”, we performed the analysis by adding google and paypal to the comparable companies. As for the next table, our range for the enterprise value is included between 101 and 139 billions.

EV/EBITDA* on Dec 2013 forward P/E on Dec 2013

Amazon 45.07 143.91

Google (data as of today) 16.21 22.17

Ebay 5.03 16.42

PayPal (data as of today) 25.31670404 24.69

Groupon 40.06 40.96

Average 26.33734081 49.63

Ebitda on Dec 2013 (Mil) Net Income on Dec 2013 (Mil)

Alibaba 3836$ 2820$

EV estimate (Mil) - Using average EV/EBITDA 101030.0$

EV estimate (Mil) - Using average P/E 139956.6$