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If Alibaba files for an IPO in the United States this coming week as expected, the media will tout it as yet another symbol of “China’s rise”—an opportunity to bet on China’s “emerging middle class” or its “explosion of online spending.” But Alibaba, under the leadership of founder and chairman Jack Ma, is not just another Chinese tech company: It’s incredibly profitable and it’s already going global.
Unlike many US tech IPOs, Alibaba has been profitable for ages—it reported $1.35 billion in profit in the last quarter of 2013, compared with Facebook’s $520 million in the same period.
And, while a US IPO might boost its profile outside China, Alibaba has already been doing fine snatching up Silicon Valley startups and expanding in Southeast Asia. The company kicked off a frenzied global investment binge in 2013: It borrowed $8 billion, at roughly 4% interest, and sank around $5 billion in 20-plus companies, buying into everything from an American online sports retailer to the Chinese equivalent of Macy’s.
So Alibaba doesn’t need to list in the US to expand its reach or raise cash. Why do it? Many think, with pretty good reason, that the IPO is more about whittling down Yahoo’s stake, and that the company chose New York over Hong Kong so that Ma can control it more tightly.
Should prospective investors be thrilled about that? Ma clearly doesn’t care. He’s recently drawn suspicion with three investments through non-Alibaba entities using complicated deal structures, including one that borrowed up to 6.5 billion yuan ($1 billion) from Alibaba. The hazy rationale behind those deals hearkens back to 2010, when Ma spun Alipay, Alibaba’s payment platform, out of Alibaba Group and into a separate company he owned. (Though this was done to comply with new government rules, he did so without seeking the approval of Yahoo or Softbank, Alibaba’s biggest investors.)
Despite that episode, history has given plenty of reasons to trust Ma’s instincts. But investors should have no illusions that investing in Alibaba is a bet on much of anything else. —Gwynn Guilford
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