20140814-Alibaba-IPO

Should you buy Alibaba when it starts trading?

The largest IPO in US history will begin tonight. Alibaba priced its IPO at $68 a share, raising $21.8 Billion. As most of us are unable to subscribe to Alibaba IPO, the question to ask is should we buy Alibaba IPO once it begin trading in NYSE?

Reasons to buy Alibaba

1) Reasons to buy Alibaba, Business to Business(alibaba.com), Business to consumer(Tmall.com) or Consumer to Consumer(Taobao.com), Alibaba got it footprints everywhere. I love Taobao and uses them myself to ship in anything I deemed to expensive in Singapore or I cant find them in Singapore.

2) Reasons to buy Alibaba. China is still a massively developing country and adoption of internet is still growing at a rapid pace. This implied that Alibaba local revenue will continue to grow in double digits for a few more years

3) Reasons to buy Alibaba, its has successfully ventured into internet TV, payment system(Alipay) and even a certain extend banking( Yu’e Bao)

Alibaba-Group

 

Reasons NOT TO buy Alibaba

1) High Valuation, Not much room for growth – Valuation at $68 a share a market valuation of 167 billion. Its really a huge company for an IPO. Suppose Alibaba were to double that would make them almost 340 billion, the 2nd largest company in the world – just behind Apple and ahead of ExxonMobil.

2) The price isn’t right – it’s all a question of supply and demand, right now Alibaba could be way over hype resulting in its share price to be over valued right after the bells ring due to a lack supply for Alibaba shares.

Bottom line

Alibaba is an amazing company with promising prospects, however if you are thinking it Alibaba IPO will make you rich as though you had bought Google when it IPO, you would be seriously disappointed. Google IPO at a mere valuation of 23 Billion ~ about 7 times less than Alibaba current valuation.

Disclosure:  I will likely purchase a few Alibaba when the price is right.