China’s many decades of growth and development have resulted in its gradual transition from an emerging economy, centered around manufacturing, to a developing economy, focused on services and consumerism. According to Bloomberg.com, last year was the first time China’s electronics industry outpaced the steel sector (a big deal). This technological growth has led to the emergence of massive tech companies like Alibaba, which has recently capitalized on Asia’s untapped consumer demand for retail goods (click here to read about Alibaba’s involvement in the success of Chinese social media giant Weibo).
Alibaba is (currently) a private E-Commerce company that sells the vast majority of its products in China. Acting as a middleman, Alibaba connects manufacturers with consumers. By facilitating these transactions, Alibaba collects commissions that generate unprecedented revenues. In fact, Alibaba’s ludicrous revenues place it ahead of the combined force of Amazon (AMZN) and eBay (EBAY). Furthermore, Alibaba’s pre-IPO valuation has been pegged above Amazon’s $142 billion market cap. However, to fully appreciate this Chinese juggernaut, investors must understand the twelve companies that comprise the Alibaba conglomerate.
Three core companies are at the heart of the Alibaba Group’s twelve holdings. The first is Alibaba.com, the main online platform for the Alibaba Group. Not surprisingly, Alibaba.com specializes in B2B transactions that connect international businesses with Chinese sellers. The second major company under Alibaba is Taobao, Alibaba’s eBay equivalent, which was China's third most visited website in 2013. Lastly, the third key branch of the Alibaba Group is Tmall.com. Tmall caters to consumers who wish to purchase luxury goods, a growing phenomenon in China.
According to the Wall Street Journal, Taobao and Tmall combined for $240 billion in transactions volume last year (almost 85% of Alibaba’s revenue). This is in comparison to eBay’s $76.5 billion in merchandise transactions. Thus, by capitalizing on Chinese consumer demand, Alibaba has achieved revenue growth that is nearly four times larger than that of eBay.
Such success has resulted in the Alibaba Group announcing it will issue an initial public stock offering on an American exchange, which will make it the largest IPO since Facebook (FB) and Visa (V). With such lofty expectations, Alibaba has decided to leave nothing to chance, and has recently filed patents with the U.S. Department of Commerce (which may help stabilize its IPO). Bloomberg reports that Alibaba has obtained 102 U.S. patents and wouldn't be surprised if the company acquires more prior to its IPO.
Alibaba is expected to complete its IPO paperwork within the coming weeks. With its current stronghold in China, and plans to expand, it appears that the sky is the limit for the Alibaba Group.