Alibaba Catches Baidu, Trails Tencent 阿里巴巴追上百度，落后于腾讯
The headlines have been buzzing this week with word that e-commerce giant Alibaba will soon announce the sale of 20 percent of its shares held by Yahoo (Nasdaq: YHOO) to a new investor group for $7.6 billion, in the first step of a slow-motion divorce between these 2 Internet giants. (English article; Chinese article) From my perspective, the most interesting elements of the announcement will be the latest valuation Alibaba gets as a result of the deal, and also the names of the new investors in this massive new stake sale. Both will hint at what the future holds for Alibaba in terms of growth as it moves towards an IPO as soon as 2014.
Let’s start with the valuation angle, as that element is the most straightforward and easiest to calculate. Based on the sale price and stake size, the stake sale, which media reports say will be announced next Wednesday, should value Alibaba at around $38 billion. To put that number in perspective, that valuation would be roughly the same as Internet search leader Baidu (Nasdaq: BIDU), but would still be well behind China’s biggest Internet firm Tencent (HKEx: 700), which is currently valued at $58 billion.
To put the number in a little more perspective, previous reports indicated Alibaba was valued at $36 billion when a new group of investors bought into the company about a year ago. (previous post) That would mean that Alibaba’s value has risen around 6 percent over the last year, versus a hefty 40 percent rise for Tencent over that period and a 25 percent tumble for Baidu.
So if this latest valuation is correct, it would seem to put Alibaba in strong position to become China’s second largest Internet company as it overtakes a fading Baidu. It would still remain well behind a surging Tencent, which is rapidly translating its dominant position in the desktop social networking and gaming spaces into the mobile Internet. (previous post) While Alibaba founder Jack Ma may not be thrilled with the number 2 position, he can at least derive some consolation from the fact that his company has passed Baidu, a company he seems to particularly dislike for reasons I’ve never been able to completely understand.
From the valuation issue, let’s look at the investors who are likely to appear on the list when the new announcement comes out next week. I suspect that Russia’s Digital Sky Technologies will be near the top of the list, since DST has been a big believer in the Chinese Internet, making previous investments in a diverse range of companies from Alibaba itself to Alibaba’s chief e-commerce rival Jingdong Mall and low-cost smartphone specialist Xiaomi.
More interesting will be who else is on the list, as this will indicate what kinds of growth the big investors are expecting before Aliibaba makes a highly anticipated IPO as soon as 2014. My guess is that we’ll see a lot of the traditional big investment banks and fund managers, including names like Goldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) on the international side, and Hony Capital on the Chinese side. If these names indeed appear on the list, they will probably be expecting a further 20-40 percent increase in Alibaba’s valuation by the time of its IPO, meaning we could see the company valued at about $50 billion when it finally goes public.
Bottom line: Alibaba’s new stake sale should give it a valuation of around $38 billion, which will probably grow to around $50 billion by the time of an anticipated IPO as soon as 2014.
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