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Alibaba just boosted its planned IPO price but still has room to “pop”

Reuters/Bobby Yip
This thing is just going to go up.
By Heather Timmons
Published Last updated This article is more than 2 years old.

Alibaba, the Chinese online shopping giant, is proving so popular with foreign investors that the company just increased its initial public offering price to a maximum of $68 a share.

The original share price range topped out at $66, which would have valued the company at $163 billion. The new maximum price adds another $7 billion.

That’s still a bargain, according to some investors and analysts. Glade Brook Capital Partners amassed a $250 million stake last year, betting that the company would be worth $200 billion after its IPO. In April, an analyst from Bernstein valued the company at $245 billion. Given Alibaba’s rapid profit growth, the price is also cheap compared with the company’s peers, as Bloomberg reported earlier today:

Chinese Internet peer Baidu Inc. trades at about 35 times estimates of this year’s earnings, while Tencent Holdings Ltd. trades at 37 times. A valuation of 35 times would imply a price of nearly $80 a share for Alibaba. Amazon.com Inc. fetches closer to 136 times forecast 2014 earnings.

By not pricing the company’s stock higher, Alibaba’s bankers are “building in the pop,” Alibaba watchers say, and avoiding a repeat of Facebook’s mistakes. “For better or worse, bankers are not feted for getting the price right but for getting it wrong, albeit in one direction and not by too much,” Aswath Damodaran, a professor of finance at New York University, blogged earlier this month. A well priced IPO is one where the stock jumps 5% to 10% on the first day of trading, Damodaran wrote. That way, everyone, from banks to new investors to the company’s management, can sit back and watch Alibaba rise when trading starts Sept. 19.

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