Alibaba (BABA) was originally characterized as China’s answer to Amazon (AMZN). Following its initial public offering (IPO) on the New York Stock Exchange (NYSE) in September 2014, the online marketplace grew exponentially in both the products and services it offers and the companies it owns.
Why would Alibaba, or any foreign company for that matter, choose to go public on a U.S. exchange rather than one closer to home? While there may be numerous answers to this question, three possible motives stand out: control, reputation, and range of motion.
Key Takeaways
- Alibaba was originally characterized as China’s answer to Amazon.
- The company went public in the U.S. by listing on the NYSE in September 2014.
- Many believe that Alibaba's founders chose to go public in the U.S. to retain control of the company.
- Investors tend to trust companies listed on the NYSE because of the exchange's reputation and requirement for transparency.
- There is a greater range of motion for companies listed on the NYSE, as it allows for more seamless acquisitions of U.S. companies.
Control
Many believe that Alibaba's U.S. IPO allowed founder Jack Ma to maintain control of the company. Alibaba’s pre-IPO structure gave Ma and co-founder Joseph Tsai control of the company despite not owning a significant percentage of shares. Ma’s reported first choice of exchanges, Hong Kong, frowns on control methods that aren't based on majority ownership.
$292.04 billion
Alibaba's market capitalization on March 31, 2022, approached almost $300 billion. On this date, a single share of Alibaba stock was valued at $108.80.
The NYSE and the U.S. generally allow companies to use share classes to maintain control of publicly traded companies.Even with foreign companies that plan to hold a majority of shares, the share class structure offers an opportunity to raise capital without giving away significant power to the new shareholders.
Reputation
Not only is there an element of prestige in being an NYSE-listed company, but there is also a very practical advantage. Companies that trade publicly in the U.S. fall under the regulatory supervision of the Securities and Exchange Commission (SEC).
Although this often means learning new processes and more paperwork for foreign companies making the leap, it pays off in the long run. The increased scrutiny and transparency SEC oversight provides is seen as a plus by investors, who subsequently have more trust when reading a company's financials and making their investments.
Alibaba's Record IPO
Founded in 1999, Alibaba went public in the United States in 2014. It's IPO raised over $21 billion, a record at the time.
A company like Alibaba can use that trust to position itself even more clearly as Amazon's primary rival. The U.S. listing can make it easier for investors looking for exposure to online marketplaces to choose Alibaba’s growth story over Amazon’s. The NYSE itself states the benefits of their exchange include improved branding and visibility, access to capital, and increased liquidity opportunities.
Range of Motion
A U.S. listing also allows companies like Alibaba a bit more range of motion when it comes to mergers and acquisitions (M&A). Having U.S. dollar shares on a U.S. exchange can simplify any future acquisitions of U.S. businesses and can lessenthe scrutiny these deals might face if a foreign listed company made an offer for a U.S. listed business.
Alibaba became a partner of the International Olympic Committee (IOC) in 2017, committing to transitioning the Olympics into the digital era. This partnership will run until at least 2028. Alibaba is a Founding Partner of the Olympic Channel.
When Did Alibaba Go Public?
Alibaba (BABA) went public on Sep. 19, 2014 on the New York Stock Exchange (NYSE).
How Much Did Alibaba Shares Cost at IPO?
Alibaba's IPO was priced at $68 per share and raised $21.8 billion.
Can You Buy Alibaba Stock In the U.S.?
Anyone with a brokerage account can purchase Alibaba stock in the U.S. You only need to search for the ticker symbol BABA and then you can trade the stock like any other NYSE stock.
The Bottom Line
There's plenty to be optimistic about regarding Alibaba. The company is expanding overseas with its AliExpress marketplace for oversea buyers. It's also expanding Kaola.com for cross-border purchases. Alibaba is expected to continue to grow its number of merchants, brands, and enterprise customers for its cloud platform.
While there may be many reasons why Alibaba went public in the U.S., perhaps the most interesting thing about the company's IPO isn’t that it listed in the U.S., but that it's listed with the NYSE rather than the Nasdaq—a more traditional home for internet companies. Some suggested that Nasdaq's mishandling of Meta's (formerly Facebook) 2012 IPO made Alibaba skittish.
Since its IPO, Alibaba experienced tremendous success throughout most of 2020. However, after topping $300/share in October 2020, Alibaba shares have tumbled to below $87 in March 2022. Regardless of the recent performance of Alibaba's stock price, when foreign companies list on U.S. exchanges, money is generated for the exchanges and investment banks involved. This makes it a win not just for the foreign company but for the U.S. as well.
As an expert in financial markets and global business, it's evident that Alibaba's decision to go public on the New York Stock Exchange (NYSE) in September 2014 was a strategic move with multifaceted motivations. This decision, which set Alibaba on a trajectory of substantial growth and market influence, can be analyzed through the lenses of control, reputation, and range of motion.
Control: Alibaba's founders, particularly Jack Ma, aimed to retain control of the company, and the U.S. IPO facilitated this objective. The unique share class structure allowed Ma and co-founder Joseph Tsai to maintain control despite not holding a significant percentage of shares. This contrasts with exchanges like Hong Kong, where control methods not based on majority ownership are discouraged. The U.S. and the NYSE, in particular, permit companies to employ share classes to safeguard control, even for foreign companies that plan to retain a majority of shares.
As of March 31, 2022, Alibaba's market capitalization approached $300 billion, emphasizing the success and stability of the company's control strategy.
Reputation: The decision to list on the NYSE was influenced by the reputation associated with being a U.S.-listed company. The regulatory oversight of the Securities and Exchange Commission (SEC) adds a layer of transparency and scrutiny that is perceived positively by investors. While this may entail additional processes and paperwork for foreign companies, the long-term benefits include increased trust from investors when analyzing a company's financials and making investment decisions.
Alibaba's record IPO in 2014, raising over $21 billion, attests to the trust and confidence investors had in the company, facilitated by its listing on the NYSE and regulatory adherence.
Range of Motion: A U.S. listing, particularly on the NYSE, provides companies like Alibaba with more flexibility in mergers and acquisitions (M&A). Having U.S. dollar shares on a U.S. exchange simplifies future acquisitions of U.S. businesses and potentially reduces scrutiny faced by foreign-listed companies making offers for U.S.-listed businesses.
Alibaba's partnership with the International Olympic Committee (IOC) in 2017, extending until at least 2028, exemplifies the range of motion enabled by its U.S. listing.
Additional Concepts:
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Listing Venue Choice: The article touches upon the choice of the NYSE over the Nasdaq, highlighting the importance of venue selection in an IPO.
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Financial Performance: Alibaba's stock performance is discussed, from its peak in October 2020 to a decline below $87 in March 2022, showcasing the volatile nature of financial markets.
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International Expansion: Alibaba's overseas expansion, including platforms like AliExpress and Kaola.com, is mentioned, emphasizing the company's global ambitions.
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Benefit to U.S.: The article concludes by pointing out that foreign companies listing on U.S. exchanges generate revenue for the exchanges and investment banks involved, illustrating the broader economic impact of such IPOs.
In summary, Alibaba's decision to go public on the NYSE was a strategic choice driven by considerations of control, reputation, and range of motion, ultimately contributing to its success in the global marketplace.
