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Alibaba's business model and the Chinese market make its IPO hot

Michael Kan | May 8, 2014
Alibaba's IPO in the U.S. could surpass the US$16B offering from Facebook

In its IPO filing, Alibaba warned that in the mobile space, the company is focusing more on increasing user activity rather than maximizing revenue opportunities. On its mobile apps, the company is so far displaying fewer advertisements than those that can be found on its websites designed for PCs.

Who owns Alibaba?

Alibaba chairman and founder Jack Ma has been the face of the company, and owns a 8.9 percent stake. But it's Japanese tech giant SoftBank that has a far larger interest in the company, at 34.4 percent. In 2000, SoftBank initially invested in Alibaba with only US$20 million.

Yahoo also holds a sizeable stake, at 22.6 percent, the result of a deal it made with Alibaba back in 2005 for $1 billion. The U.S. company, however, has agreed to sell about 40 percent of its shares to the public or Alibaba in the upcoming offering.

Still China centered

Alibaba made no mention of an international expansion in its IPO filing, signaling that the e-commerce giant is still focused on China. Although the company has wholesale trading platforms geared for international buyers, it makes over 80 percent of its revenue from its home market.

Lately, the company has been on a spending spree in China to help it expand and compete against rivals. The company has bought stakes in local Twitter-like site Sina Weibo and in Youku Tudou, one of China's largest online video sites. It has also acquired AutoNavi, a leading mapping provider in the country, and started a mobile search engine with a local browser developer.

A former "Notorious Market"

Although Alibaba isn't as well-known outside of China, the company gained some notoriety after U.S. allegations that it was selling fake goods on its e-commerce sites. From 2008 to 2011, the company's Taobao sites earned a place on the "notorious markets" list published annually by the Office of the U.S. Trade Representative.

In 2012, the office took Taobao off the list, citing the company's successful efforts to take down the infringing goods. But in Tuesday's IPO filing, Alibaba said any future allegations over the selling of fake goods could result in lawsuits, and bad publicity for the company.

 

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