News Column

Alibaba's IPO filing has some glaring holes

May 7, 2014

By Jon Swartz and Gary Strauss, USA TODAY

Alibaba's long-awaited registration statement for the Chinese e-commerce giant's public stock offering runs more than 2,300 pages. Yet potential investors who want to snap up what could eventually be a record-size IPO remain short on details.

Alibaba'sWar and Peace-style registration statement doesn't provide a company market value, an IPO price, even a stock symbol or stock exchange where shares will trade. Its registration statement shed few financial details for key business units, such as shopping sites Taobao and Tmall or payment site Alipay, or fresh guidance over trailing earnings and revenue.

"There are always material issues or unknowns with any IPO -- this is simply part of a new offering," says Brian Hamilton, head of financial information firm Sageworks. "In the case of Alibaba, my one major concern is the fact that there may be limits on the disclosures Alibaba and its auditors can make due to Chinese law."

And while roadshows by underwriters and investment banks will likely emerge in the months ahead, Alibaba says it's not bound by U.S. securities regulations to provide timely, detailed financial statements post-IPO.

"If they don't play ball in terms of disclosure, Alibaba may not have interest among major institutional investors," says Dartmouth Partners principal Drew Dorweiler, a trustee with the Appraisal Foundation who has been valuing companies for 27 years. "If their roadshows are criticized for a lack of transparency, they may have to go back to the drawing board and release more detailed information."

Alibaba's management structure also raises questions about concentration of shareholder power. Founder Jack Ma and 28 partners can nominate a majority of directors. Under Chinese law, most board members can be insiders. The company also lists more than three dozen pages of potential risks, ranging from slower economic growth and rising investment costs to "intense competition" from traditional brick-and-mortar retailers and rival e-commerce players.

Alibaba also says mobile shoppers -- now numbering 500 million -- are critical to future growth. "If we experience increased use of mobile devices for mobile commerce but are unable to monetize that increased use, our business may not grow or could decline, and our revenues and net income would be materially reduced," the company says.

Still, unlike many e-commerce companies, Alibaba, essentially the world's largest online shopping mall, is highly profitable. The company generated whopping net income of $2.9 billion on revenue of $6.5 billion for the nine months ending in December. (Numbers disclosed in the registration statement were not exactly fresh news. Yahoo, which owns 22.6% of Alibaba, disclosed those numbers in mid-April.)

Despite a lack of transparency in the registration statement, Dorweiler says there will be plenty of hype surrounding Alibaba in the weeks ahead. "There's a huge amount of pressure to price this so this is the biggest IPO of all time," Dorweiler says. "But we'll need more details to determine whether this will be priced fairly or be overvalued. The bottom line: Keep your eyes sharply peeled."

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Source: USA Today

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