- In summary: Sarah Mishkin wraps up what we now know about Alibaba - - and what we don't know:What did we learn from the filings?
1) How Alibaba values itself internally.Based on thenumber of shares and valuation per share, we can calculate that it
valued itself last month at between $96.9bn and $121bn, more
conservatively than some analysts and recent investors.
2) Details on the value of goods Alibaba sells. Its so-called "grossmerchandise value" for China retail platforms last year reachednearly a quarter of a trillion dollars, or $248bn. It has 231m annual active buyers.
3) How Alibaba's unusual "partnership" structure will work. The filing spelled outthe structure of its partnership of 22 Alibaba executives and 6 people fromaffiliated groups who will select the board members. We
also learned how Alibaba and its two main shareholders, Yahoo and
Softbank, will cooperate in supporting each others' nominees for
directorships. The punch line is in the risk factors section of the filing:"This governance structure and contractual arrangement will
limit your ability to influence corporate matters, including any
matters determined at the board level."
What are we still waiting to hear?
1) Final valuation and amount the company will raise. It says in the
filing it will raise $1bn, but that is a placeholder and sources
familiar with the deal say it could be north of $15bn, pending the
outcome of the global roadshow it is now embarking on.
2) Board members. Post-listing, the company will have nine. Now it has
four--founder Jack Ma, executive vice-chairman Joe Tsai, Softbank
chairman Masayoshi Son, and Yahoo's chief development officer
Jacqueline Reses. Ms Reses will resign after the listing. The
identities of the new six are unclear.
3) Exchange or symbol. The filing just says: "We will apply for listing
of our ADSs on the New York Stock Exchange or the Nasdaq Global Market
under the symbol "
- 9.05pm EST: FastFT has the lowdown on Alibaba's complex corporate structure and its "variable interest entities", which are mentioned 157 times in the F-1 filing:
8.53pm EST: Jack Ma so far shown himself to be adept at manoeuvring through the Chinese regulatory system. But Alibaba’s list of “risk factors” reveals a number of potential areas where the PRC might suddenly decide to intervene, in ways unlikely to be beneficial to shareholders, writes Tim Bradshaw.
Similar warnings might apply to any Chinese company – but most Chinese companies aren’t planning one of the largest IPOs in US history.
The party’s overall internet regulation already prevents most US tech companies from operating in China.
“Under PRC law, we are required to monitor our websites and the websites hosted on our servers and mobile interfaces for items or content deemed to be socially destabilizing, obscene, superstitious or defamatory,” Alibaba says.
But that’s just the start. At the moment, one of Alibaba’s main income streams – “pay for performance” ads to allow sellers to promote their items on Taobao – is not actually classified as online advertising in China. But if that changed, there would be all sorts of tax, licensing and content-monitoring ramifications. “We cannot assure you that the PRC government will not classify our P4P and other related services as a form of online advertising,” Alibaba says.
Despite this, all of Alibaba’s business units are already “highly regulated”, it says, and new laws and licensing requirements are “likely” to keep on coming “at any time”.
Even as it touts itself as the “largest online and mobile commerce company in the world”, Alibaba says it could become the target of antitrust enforcement, after the PRC’s anti-monopoly law came into effect in 2008.
Alibaba says it has already faced government inquiries over website content and copyright infringement. As it grows, that scrutiny is likely to increase, Alibaba warns.
Another front open to uncertainty is taxation, both on Alibaba itself and its sellers. “A significant number of small businesses and sole proprietors operating businesses through storefronts on Taobao Marketplace may not have completed the required tax registration,” Alibaba warns. If the Chinese government decides to crack down, sellers “could decide to remove their storefronts from our marketplace rather than comply”.
Alipay is another area where government intervention could create problems. Reports in March that the People’s Bank of China was drafting new regulations for online and mobile payment services could mean that buyers using Alipay in its marketplaces – some 78.6 per cent of total spending there last year – could be “materially limited” in how much they can spend in a particular transaction or over a given month.
Potential Alibaba shareholders should also be aware that the fully audited accounts they have become used to for US-based companies are not entirely possible here. US accounting regulators are unable to make their usual inspections of auditors without approval from the Chinese government. “As such, you are deprived of the benefits of such inspection,” Alibaba warns prospective investors.
Fundamentally, Alibaba’s biggest exposure to government intervention is in how the PRC’s economic controls affect overall Chinese growth.
“We derive substantially all of our revenue from China,” it says. “Changes in the political and economic policies of the PRC government may materially and adversely affect our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies.”
- 8.07pm EST: Alibaba’s shareholder list contains some well-known names from around the globe — from China and Japan to Singapore, Silicon Valley and Russia. In this separate post on the FT Tech Blog is a breakdown and guide to the biggest names to profit from the listing:
8.05pm EST: Alibaba has made a direct attempt to address a controversial issue on the minds of many potential investors: can they always trust founder Jack Ma to put his company’s interests first?
The concern was stoked by the 2011 spin-off of payment arm Alipay into a separate company under the control of Mr Ma, writes Richard Waters. The development, which the company said was made for regulatory reasons, precipitated a heated dispute with Yahoo, which wasn't told till later, even though it has a seat on the board.
In what looks like a belated attempt to salve that wound, Mr Ma is to cut his stake in Alipay from 46 per cent to match his 8.9 per cent interest Alibaba, but he won't reap any personal gain from the disposal. The intention to reduce his stake was disclosed last year, but not the concession to forgo his profits.
The Alibaba IPO looks like it will still go ahead with important questions about Alipay unresolved, however. The payment arm handles 78 per cent of the transactions on the Chinese ecommerce sites – a massive proportion that highlights its strategic importance to the ecommerce giant. That makes the separation between the companies an uncomfortable one for potential Alibaba shareholders.
Ideas have been floated internally for more than a year for ways to overcome this and to make sure the interests of the two entities are aligned, according to one person familiar with the discussions. The talks have also touched on whether Alibaba investors should see more of the upside from an eventual Alipay IPO: at the moment, the most the ecommerce company can receive for its minority stake has been capped at $6bn.
However, any change relationship with Alipay looks unlikely before the IPO. Chinese regulators would have to approve new arrangements, and consideration of the issue has never got as far as a hard proposal, according to the source.
In a second move to untangle his personal interests, Mr Ma has agreed to donate his profits from a private equity firm he has an interest in, called Yunfeng Capital, to Alibaba’s charitable foundation. Yunfeng has invested alongside Alibaba in some of its recent deals, such as its backing of online video service Youku Tudou. Giving up his personal profits would help to assuage the impression that Mr Ma has enriched himself from the deals.
In a final, blanket undertaking, the Alibaba founder has promised to “disclaim all economic benefits” from any future personal stakes he assumes through his position at the company – for instance, if regulations force it in future to operate through separate legal entities.
7:54pm EST: Dividends, shmividends. In its prospectus, Alibaba says it has no plans for these payouts to shareholders and will reinvest in the business instead, writes Nicole Bullock.
“Since our inception, we have not declared or paid any dividends on our ordinary shares. We have no present plan to pay any dividends on our ordinary shares in the foreseeable future. We intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.”
- 7:25pm EST: Alibaba is not just keeping analysts and investors waiting for details on how it will price its shares or how many it will sell, writes Nicole Bullock. The company also has not yet disclosed whether it will list on NYSE or Nasdaq, which are vying for what could be the biggest IPO ever. Nasdaq, traditionally the home to big tech IPOs, failed to win Twitter's listing last year after Facebook's botched $16bn IPO in 2012.
- 7:22pm EST: Another video of Jack Ma's onstage antics, this time interviewing NBA star Kobe Bryant in a "fireside chat".
7:15pm EST: Here's one lighter note from the filing and something you don't see in most SEC documents -- key corporate executives referred to amidst the legalese by their first names and nicknames, writes Sarah Mishkin.
See this part, describing the relationship between Alibaba management and its largest shareholder, Japanese telecom Softbank, when it comes to voting for the board of directors:
"Jack and Joe will vote their shares and any other shares over which they hold voting rights in favor of the election of the SoftBank director nominee at each annual general shareholders meeting."
Jack and Joe would be Jack Ma (or Ma Yun in Mandarin) and Joseph Tsai, executive chairman and executive vice-chairman, respectively. There are ten references to Messrs Ma and Tsai as "Jack and Joe" throughout the filing.
A quick perusal of other technology companies failed to turn up Facebook's founder referred to as anything but Mr Zuckerberg, or Twitter's founder as anything but Mr Dorsey – despite the latter being better known as @jack.
- 7.04pm EST: One to look out for in the coming weeks is who Alibaba will name to its board, writes Arash Massoudi.Six people will be named as directors to join Jack Ma, Joe Tsai and Softbank's Masayoshi, the FT is told. Yahoo's SVP for "people and development", Jacqueline Reses, will vacate the seat held by the search company when the IPO is priced, according to the Alibaba filing.
6:52pm EST: One “risk factor” that won’t be unfamiliar to most Alibaba observers is fakes, writes Tim Bradshaw.
Alibaba says that it has, from time to time, been told that products sold on its sites “infringe third-party copyrights, trademarks and patents or other intellectual property rights”. Surely not!
IP-protection schemes that it has put in place “may not always be successful”, it says, and it has received “negative publicity” about this problem.
“In 2008, 2009 and 2010, Alibaba.com, and in 2008, 2009, 2010 and 2011, Taobao Marketplace, were named as ‘notorious markets’ in the annual Special 301 Report or Special 301 Out-of-Cycle Review prepared by the Office of the US Trade Representative.,” it says, although the US has since removed them from its list, which identifies markets that it says “harm American businesses and undermine our workers, through the infringement of intellectual property rights”.
But while it seems to be suggesting that fakes are becoming less of a problem – although they are still not hard to find on the site – Alibaba notes that “continued public perception that counterfeit or pirated items are commonplace on our marketplaces” could cause reputational, legal or pricing problems “even if factually incorrect”.
Later in its risk factors, Alibaba notes that it may be a victim of fakes itself. "We may not be able to protect our intellectual property rights," it says. "Intellectual property protection may not be sufficient in China or other countries in which we operate."
6:37pm EST: In contrast to Yahoo there is every indication that SoftBank, Alibaba's biggest shareholder with a stake of 34.4 per cent, intends to keep a tight hold on its investment, writes Jennifer Thompson in Tokyo.
Softbank is keeping mum about its plans for the stake but Yoshimitsu Goto, SoftBank's general manager for finance, recently indicated that the group plans to hold onto it.
"Alibaba is among the most important companies in our group, so our plan is to hold the stake for a long period of time," he said in an interview with Bloomberg last November.
The stake in Alibaba is a small part of the Japanese telecoms group's earnings, contributing just under 3 per cent of net income in the nine months through December, based on SoftBank's financial report for the
But considering it was bought for a diddly $20m over a decade ago and could be worth more than $40bn following the listing, that looks like a pretty canny investment - equal to approximately half of SoftBank's own market capitalisation.
6:18pm EST: In Alibaba’s risk factors section, amid the usual tech-company hedges about focusing on the “long-term interests” of users that may “fail to generate short-term financial results”, comes a line about mobile, writes Tim Bradshaw:
“our efforts relating to our mobile platform have emphasized expanding our user base and enhancing user experience, rather than prioritizing monetization of user traffic on our mobile platform”.
Alibaba says that it does not think mobile has had an “adverse effect” on its business yet but it expects mobile’s share of spending through its site to increase and that mobile users will be less valuable in the near term.
Sound familiar? Just like Facebook in its S-1, Alibaba isn’t 100 per cent sure how mobile advertising will work. That either means there’s a Facebook-style wobble over its mobile strategy coming, or a huge Facebook-style upside, depending on how soon Alibaba can tackle this issue.
- 5.54pm EST: Alibaba's filing said it reached a valuation of $40-$50 per share in April, writes Arash Massoudi, or about double the $53.3bn to $60.5bn it believed it was worth at the start of the year, as excitement over its IPO grew. Based on a diluted share count of 2.42bn, that implies an internal valuation between $96.9bn and $121bn, The valuation could change significantly over the course of what is expected to be a long roadshow around the US, Asia and Europe.
- 5.46pm EST: Corporate governance purists who have balked at the idea of dual-class stocks (or, in the case of Google, tri-class) will have a field day with this one, writes Richard Waters.The good news in Alibaba's case: all shareholders have the same rights. The bad news: they don't amount to any control of the company at all.The majority of Alibaba directors are elected by a "partnership" of 28 senior executives, on a one-partner, one-vote basis. The partnership is self-perpetuating - new partners are elected with 75 per cent support from existing members. So there is complete separation of ownership and control.Complicating the governance arrangements even further: six of the 28 partners aren't even employees of Alibaba, but work for related companies or affiliates. This whole plan, the company claims, enables "senior managers to collaborate and override bureaucracy and hierarchy".
- 5:38pm EST: One potential source of concern has been mobile: whether Alibaba is making sufficient inroads on smartphones, writes Richard Waters. The IPO filing shows this part of its business is growing very fast: 15 per cent of gross merchandise volume for last year, but 19.7 per cent in the final quarter. That's above the 19 per cent that eBay reported for mobile in its most recent quarter.