Is Alibaba.com Worth US$7.8bn?
Something is bothering me about Alibaba’s IPO and related market valuation. In case you haven’t heard, the company is looking to raise as much as $1.3bn in an initial public offering, making this the largest ever IPO for a tech company based in China. The IPO is going to give the company a valuation approximating $7.8bn. Believe it or not, some are saying that this value is low.
Alibaba.com is a website that provides information on China manufacturers (Yahoo! owns a 39% stake). The website serves as a kind of directory. Consider it a Yellow Page for prospective importers. Those who say that website is a great business model emphasize the company’s first-mover advantage. Many also get excited about this being a “B2B play” - the phrase is so “2000”, but never mind that part. My lack of enthusiasm for the IPO has more to do with many uninspired experiences with the company’s website. To be frank, I just don’t get it. Aren’t the best China supplier relationships those where the supplier and buyer are known to each other, where the two have an on-going work relationship? Established players have little use for the website after the relationship is in play, and it’s hard to imagine that, for example, Mattel, ever used Alibaba.com (its supplier relationships predate the Internet).
If the website has any value at all, it’s in enabling fledgling factories to find would-be buyers. If you believe there is value in such a proposition, let’s reference all of those financial analysts reports that suggest the industry is rapidly consolidating. It would be one thing if factories were like single people - dating websites enjoy a steady stream of new single customers - but manufacturing is not the same. In the long run (or sooner?), all capable manufacturers are known to the market. The website works best in a world with murky market data. We are heading away from that world, not towards it. There are already websites that allow companies to list information for free and Chinese are using these sites with greater frequency.
I have no doubt that the IPO will come out strong. It’s going to get lots of attention because it’s both a tech play, and it’s a China play – call it “hype squared”. Not sure about Alibaba Group’s other businesses – it’s PayPal-style, or eBay-style, business models. It’s just that Alibaba.com as a business lacks what you want to see in an Internet offering. Just take a look at these five-year graphs pulled from Alexa. In terms of page views, as well as the site’s rank, both are down to where they were when Alibaba.com just started to take off in 2003. The company may be a rocket ship, but it’s one pointing in the wrong direction.