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Technology / Networks

Why Alibaba could be the biggest flotation in history

Alibaba’s IPO filing on Tuesday has prompted speculation that it could become the largest flotation in history, with estimates as high as $245bn.

The Chinese e-commerce firm was founded by entrepreneur Jack Ma in 1999, linking manufacturers from Asia’s largest economy with customers overseas, and has been compared to eBay, Paypal and Amazon combined.

Chris Beauchamp, market analyst at IG, part of a financial trading group, said: "The floatation would make it one of the biggest IPOs in history, dwarfing that of Twitter and potentially putting Facebook in the shade as well."

In the filing the group boasted of 11.3 billion orders and 231 million active buyers during 2013, equating to a $248bn worth of goods traded on its Chinese marketplaces.

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"Our clients actually expect an IPO range of $198 billion to $208 billion, far tighter than the currently suggested number," said Beauchamp. This predicts a midpoint valuation of $203 billion at the end of trading on the first day, or 36.25 times revenue and 145 times earnings.

"Not only does [Alibaba] have a track record of excellent growth in China, a country where internet penetration is much lower than in the US, providing opportunity for yet more sales growth, but it has a much wider operating margin than Facebook and Google, at 50% versus 37% and 28% for these other firms," the analyst added.

Estimates for the amount the floatation could raise have ranged from $1bn, the company’s guess many dismiss as notional, to $20bn. Ma, who is worth $8.4bn, stands to become even richer with his 8.9% stake in the company, while Yahoo have even more to gain as owners of almost a quarter of the business.

Though the company’s reputation has increased in the last year, it was only dropped from an American government piracy list of "notorious markets" at the end of 2012, and was battling last year to reduce the amount of counterfeit goods passing through its markets.

It is soon to open 11 Main, an American e-commerce site which will look to compete with the likes of Amazon and eBay.
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