Alibaba

Topics: Electronic commerce, Alibaba Group, Business-to-business Pages: 73 (6794 words) Published: March 2, 2015
ALI FARHOOMAND

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ALIBABA.COM

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China is a place where miracles are made.

- Jack Ma, founder and chairman of Alibaba Group1

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On 6 November 2007, Alibaba.com debuted on the Hong Kong Stock Exchange, raising US$1.5 billion to become the world’s biggest internet offering since Google’s initial public offering (“IPO”) in 2004. A frenzied purchase of the stock pushed prices up by 193% on the first trading day, making it the fourth-largest first-day gain in Hong Kong’s stock exchange in three years. The closing price of US$5.092 per share valued Alibaba.com at about US$25.6 billion, making it the fifth-largest among global internet companies and the largest in Asia outside Japan. It also made the company’s stocks among the most expensive in Hong Kong, 3 trading at 306 times the projected 2007 earnings of US$83.6 million.4 In contrast, Yahoo, a globally recognised dotcom brand that held a 39% stake in pre-IPO Alibaba.com, and Japan’s Softbank, which owned 29.3% of Alibaba.com prior to the IPO, traded at only around 60 times their projected earnings. In other words, shareholders had displayed extreme optimism about Alibaba.com’s earning prospect by paying a significant premium to own the company’s shares.

No

Barely a week after the IPO, Alibaba.com was already reported to be in talks with Softbank to set up a joint venture in early 2008 in Japan. Although the Japanese telecom giant disclosed no details regarding the venture, it was likely that Alibaba.com would expand its service to mobile users in Japan, a market that had been impenetrable to the Chinese e-commerce company.5 On the home turf, parent company Alibaba Group had already proven its mettle by topping EachNet, an older rival backed by global leader eBay.6 Founder and chairman Jack Ma had made it his aim to make the Alibaba Group one of three largest internet companies in 1

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Kwong, R and Mitchell, T (7 November 2007) “Alibaba Shares Soar on First Day of Trading”, Financial Times (Asia Edition).
US$1 = HK$7.76425 on 6 November 2007.
Kwong, R and Mitchell, T (7 November 2007) “Alibaba Shares Soar on First Day of Trading”, Financial Times (Asia Edition).
US$1 = Rmb 7.4638 on 6 November 2007.
Kwong, R. (14 November 2007) “Softbank and Alibaba in Talks”, Financial Times (Asia Edition). Liu, B. (17 April 2007) “US Giant eBay Loses Ground to Taobao”, China Daily.

Ricky Lai prepared this case under the supervision of Prof Ali Farhoomand for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. © 2008 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—without the permission of The University of Hong Kong. Ref. 08/386C

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This document is authorized for educator review use only by Abhijith Seetharam, until January 2016. Copying or posting is an infringement of copyright. Permissions@hbsp.harvard.edu or 617.783.7860

08/386C

Alibaba.com

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the world and a Fortune-500 company.7 Could the IPO be the first step to Alibaba.com’s global market dominance, or would it be overtaken just as quickly as it rose to regional preeminence?

Internet and E-Commerce in China

The world’s most populous nation had 162 million internet users as of June 2007.8 Although the Chinese internet-using population was second only to the US, 9 China’s internet penetration rate of 12.3% significantly trailed that of the US, Japan and South Korea, whose penetration rates were above 65%.10 Nevertheless, with the penetration rate growing at around three percentage points annually [see Exhibit 1], China was expected to experience even more rapid growth in the scale of penetration, having crossed the critical threshold of 10% and heading into the steep phase...
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