Not so long ago there was only a small number of Americans outside the fame of investment and technology loops that were very familiar with what we know today as being one of the biggest companies in the world. Alibaba is China’s leading online shopping gateway that connects businesses and clients from all over the world. It is the largest ecommerce website in the world, and in September, 2014, Alibaba raised billions of dollars in their U.S. Initial Public Offering (IPO).
However, some people believe that sooner or later, those who invested in Alibaba are going to find themselves in a very difficult financial position. I say that there are risks and benefits in every opportunity. So in this article, I’m going to explain to you what I believe are the risks and opportunities from Alibaba.
Opportunities: Huge Profits to be made
Did you know that prior to launching its IPO, Alibaba made massive efforts in order to get rid of counterfeit products from all across the country? In fact, Alibaba believes that selling only the highest-quality goods on their website benefits both the company and the consumer. There are millions of people in China looking to purchase high-end brand-name products through Alibaba and Tmall; companies with high-quality and non-Chinese goods are clamoring to get in on the action and sell their products in China through Alibaba and Tmall.
After selling an equity venture to a large corporation, Alibaba decided to buy it back by paying $7 billion for it. Better yet, after the public offering the corporation will only keep hold of around 20% of the possession, which goes to show how much money the company has in its reserves. Not only that, but by purchasing back a part of their stocks, Alibaba showed the type of hold and investment they have on their own company and the fact that it’s in the position of giving massive returns to its investors.
Risks: Revenue Comparisons
While there are good things to say about Alibaba, there are also risky things and revenue is one of them. Therefore, if the Alibaba IPO is going to price at the higher end of the anticipated range, then the company will be valued at more than one hundred and sixty billion dollars. In comparison, it’s going to be worth more than eBay and Amazon.
On the other hand, Alibaba’s revenue is lower than both eBay and Amazon. The thing is that the way Alibaba charges people for using its services is not similar to that of eBay. So instead of taking a cut out of each sale, Alibaba uses what is known as a gross merchandise volume, representing the full value of all items sold on its markets.
Whatever the opportunities and risks, one thing is for sure: Alibaba’s IPO is going to go down in history and only time can tell if it’s going to cause another tech bubble or if it’s indeed a long term investment.