Alibaba Group Holding, which started trading with the ticker BABA, priced its IPO at $68 per share, the high end of the estimated range of $66 to $68, and raised $21.8 billion.
At $68 a share, the company is valued at $167.6 billion, making it bigger than Amazon (AMZN) and more than double the value of eBay (EBAY) – the two U.S companies it is most often compared to.
Wake up, Silicon Valley – the Fertile Fields of China’s Internet
Alibaba's IPO is perhaps the most dramatic indication till now of the increasing ambitions of Chinese Internet giants Baidu (BIDU), Alibaba and Tencent (TCEHY) — known as the BAT group.
Interestingly, in Alibaba's exhaustive IPO prospectus only two competitors are mentioned (both Chinese): Tencent and Baidu.
Baidu
This Chinese Internet search giant's shares have risen over 21% since the beginning of the year.
The company has invested $10 million in a magnetic-positioning tech enterprise- IndoorAtlas and enhanced its mobile location-based services, which gave it a strong foothold against Alibaba. Earlier, Alibaba had announced its plans to acquire digital map company AutoNavi Holdings.
BIDU reported second-quarter revenues of $11.99 billion, which increased 58.5% on a year-over-year basis. The company reported earnings per share of $10.09, which increased from $7.52 per share reported in the year-ago quarter.
It is worth noting that in the last-reported quarter, BIDU posted a positive earnings surprise of 31.5%. Also, over the last 60 days, 9 out of 11 estimates for BIDU were raised for fiscal 2014. As a result, the Zacks Consensus Estimate for fiscal 2014 increased 75 cents to $5.98.
Baidu currently sports a Zacks Rank #1 (Strong Buy).
Tencent
Tencent launched its IPO nine years back in Hong Kong andis currently valued at nearly $150 billion.
Best known as the maker of QQ, an instant messaging software that boasts a whopping 800 million users, Tencent has made noteworthy investments in mobile platforms and gaming to emerge as a rival to Alibaba’s core business: e-commerce.
Tencent owes much of its recent success to WeChat, a mobile app that allows users to message each other via Wi-Fi. In a span of three years, WeChat has attracted 350 million plus users.
WeChat paved the way for Tencent in the e-commerce world — a sector dominated by Alibaba-(80% market share). WeChat users already use Tenpay, Tencent’s proprietary payment system emulating Alibaba’s Alipay, to exchange money with each other.
Recently, Tencent acquired a 20% stake in JD, a publicly traded e-commerce enterprise that will now have access to WeChat’s users. In response, Alibaba bought a stake in Weibo, China’s Twitter in an attempt to eat into Tencent’s supremacy in China’s messaging market.
Tencent recently declared its joint venture with Baidu and Wanda, the country’s biggest property developer, to alter China’s retail markets, enabling clients to place orders online and pick them up from nearby stores. This was done to challenge Alibaba’s dominance in the space.
Tencent reported second-quarter revenues of $6.2 billion, which increased 37% on a year-over-year basis. While earnings missed expectations, the Zacks Consensus Estimate for fiscal 2014 remained unchanged at 42 cents indicating temporary hiccups. Even as investors flock to buy Alibaba, Tencent’s prospects have hardly been dimmed.
Tencent currently sports a Zacks Rank #2 ( Buy).
With the hype around Alibaba, investors are going to have difficulty in being allotted the amount of shares they aimed for. These two stocks definitely deserve a look.
JD.com (JD)
JD.com, Alibaba’s domestic rival in e-commerce, has risen by an impressive 55% since May. This highlights the fact that Alibaba is not the only Chinese online retail company in the picture.
Often called the “Pepsi to Alibaba's Coke” JD boasts an impressive list of patrons. Tencent owns nearly 18% of JD while Saudi Prince Alwaleed bin Talal and Russian billionaire Yuri Milner are also on its list of investors.
In August, JD reported that its second quarter sales increased 107% from a year ago. The company expects its third quarter revenues to be up 55% to 61% on a year-over-year basis.
JD’s growth was impressive although off a smaller base than Alibaba, (which reported 46% sales growth in the second quarter), so investors will not want to ignore JD following Alibaba's IPO. But it’s important to keep in mind that the company is in investment mode and its marketing and G&A expenses could continue to trend up in the next few quarters. Escalating expenses in fact led the company to an earnings miss in the last quarter and prompted downward revisions to analyst estimates. As a result, the Zacks Consensus Estimate moved down 11 cents to a loss of 60 cents.
JD currently carries a Zacks Rank #3 (Hold).
Looking Ahead:
The global Internet market is huge with more than 2.8 billion users and a greater potential in mobile. Emarketer expects 4.6 billion people globally to use a smartphone by this year, a number expected to increase to 5.1 billion by 2017. Growing mobile usage is expected to be one of the biggest drivers of ecommerce sales in the next few years.
According to the China Internet Network Information Center, the number of Chinese Internet users is now 632 million, which is double that the U.S.
Chinese Internet companies are being driven by confidence. They have cash to invest globally from the high volumes they are able to generate in China. They recognize the potential in international markets and are therefore expanding globally.
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