Is Alibaba Worth More than Google?

♠ Posted by Emmanuel in , at 10/26/2007 04:03:00 PM
The headline is from Forbes and isn't mine, BTW, and refers to possibly richer P/E valuations for stock at the IPO stage than for Google. It feels like the heady days of the dot-com boom again as Chinese business-to-business web portal is set to make a very, very pricey initial public offering. The main difference is that has quite a viable business model. Let's start off with the Financial Times' take on the massive investor interest in the upcoming Hong Kong listing: has attracted more than $100bn in orders from institutional investors for its planned $1.5bn capital raising, reflecting keen demand for one of Hong Kong’s hottest offerings this year. [Reuters says it's now more like $180bn.]

Last year, Industrial and Commercial Bank of China, which raised $16bn on the Hong Kong stock exchange, received $350bn in orders from institutional investors and another $55bn from retail investors.

As a result of the strong interest shown in the Chinese e-commerce group it has decided to close the order book early for institutional investors in Asia and the US.

Unlike retail share applicants, however, institutions do not have to present their money upfront for Hong Kong initial public offerings. That makes it easier for them to submit big orders for popular offerings in the hopes of receiving a bigger allocation.

“It’s a bit of a [misleading] number because the dollars don’t exist,” said one person familiar with the situation.

Subscription numbers for the IPO’s retail tranche, which closes on Friday, were not available yesterday.

In another sign of’s popularity, on Monday the company raised its price range to HK$12-13.50, from an indicative range of HK$10-12. Goldman Sachs and Morgan Stanley are acting as’s joint global co-ordinators., China’s largest business-to-business website, is coming to market in ideal conditions. Hong Kong’s benchmark Hang Seng Index is again testing the 30,000-point level and has risen more than 40 per cent since mid-August. Chinese companies have been particularly popular, on expectations that Beijing will soon allow mainland investors to begin buying shares in the territory.

Investor demand for Hong Kong dollars has helped push the currency to its upper limit of HK$7.75 to $1.

On Tuesday the Hong Kong Monetary Authority, which “pegs” the local currency to the US dollar in a range of 7.75-7.85, intervened in the market for the first time since May 2005, buying $100m in an effort to stop the local currency’s rise.

According to data compiled by Thomson Financial, will be the largest internet IPO to come out of China and the sixth-largest offering on the Hong Kong stock exchange this year.

With that in mind, let's head over to Forbes' take on the IPO:, China’s largest e-commerce company, on Monday launched what is set to be one of the world’s most expensive initial public offerings, seeking to raise up to 11.6 billion Hong Kong dollars ($1.49 billion) through a share sale priced at a much higher valuation than investors paid for Google when it came public., founded by former English teacher Jack Ma in 1995, is selling a 17% stake in the company, in the biggest technology IPO since Google raised $1.66 billion in 2004. on Monday revised its already high pricing range upward to between 12 Hong Kong dollars ($1.54) and 13.50 Hong Kong dollars ($1.73) a share, which would raise a maximum of 11.6 billion Hong Kong dollars( $1.49 billion) before an allotment option that would allow it to raise more in after-IPO trading.

The pricing works out to an astronomical price-to-earnings range between 94.5 and 106.3 times 2007 earnings. By contrast, Google shares were priced at a P/E of 90 in its IPO and currently fetch a 50.66 multiple.

Ma, who spoke from a road show in the U.S. via a teleconference link to a roomful of reporters in Hong Kong on Monday evening, defended the pricing, saying the company had room to raise it even higher. “Some investors who had missed out on Google’s IPO don’t want to miss out on Alibaba’s,” he said.

His No. 2 man, chief executive David Wei, said many investors are buying into the company’s growth prospects for 2008 and beyond, which makes the pricing look more reasonable.

If it prices at the top of the proposed range, Alibaba would not be the most expensive stock in the high-flying Chinese Internet stock sector., China’s largest search engine, is currently trading at 188 times its trailing 12-month earnings on the Nasdaq, but it has a unique edge — the support of the Chinese government, with which it cooperates hand in glove to censor the Web in China, while foreign competitors like Google face strict rules and service blockages.

Even based on 2008 earnings projections, the pricing is on the ultra-rich end. At the top end of the pricing spectrum, it is valued at 54 times its 2008 forecast, higher than Chinese Internet services provider Tencent, at 36, and Google’s 32. Nasdaq-listed Global Sources, which operates a similar e-commerce exchange in China, is trading at 33 times its 2008 consensus estimate.

But would be cheaper than, which is trading at 57.78 times its projected 2008 earnings.

Many big-name investors have bought into's growth story, including AIG Global Investment, Taiwanese billionaire Terry Gou’s Hon Hai Precision, Peter Woo of Hong Kong’s Wharf (Holdings), the Kwok family of Hong Kong’s largest real estate developer Sun Hung Hai Properties, Malaysian Chinese media and hotel magnet Kuok Hock Nien, Cisco Systems, and China’s largest bank, Industrial and Commercial Bank of China.

These seven cornerstone investors have agreed to buy a total of about 2.3 billion Hong Kong dollars ($296 million) worth of shares, or 20% of the offering.

Yahoo!, which holds a 39% stake in Alibaba Group, has agreed to buy about $100 million worth of shares. is the largest business-to-business e-trading site in China; it reported earnings of 295.2 million Chinese yuan ($39.2 million) in the first six months of 2007.

The listed company would not include two fast-growing Alibaba Group businesses: its online shopping unit,, and its online payment services provider, Alipay.