Alibaba's blockbuster IPO: Why you should care about the Chinese giant

CNET breaks down Alibaba's sprawling e-commerce empire and explains why everyone's been talking about the Chinese company's initial public offering.

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Alibaba co-founder Jack Ma ChinaFotoPress, Getty Images

Alibaba might not be a household name outside of China -- yet. But that could change quickly now that the company, and its famous founder Jack Ma, is seeking investors overseas.

The e-commerce giant on Monday filed for an initial public offering in the United States, in what could be the biggest market debut in history. The Alibaba IPO, however, is a bit of a paradox: it is simultaneously one of the most anticipated and mysterious IPOs in the tech industry.

That's because Ma, considered China's answer to tech icons like Steve Jobs or Bill Gates, has built a massive empire. Alibaba's various ventures have made it arguably the largest e-commerce company in the world. It dominates in China, where most of the 302 million people who shop online do so on an Alibaba site. And, Ma is ready to expand Alibaba's international reach.

The company -- which also offers payment services, logistics, digital media, and cloud computing -- has a lot of moving parts, complicated relationships with its investors, including Yahoo, and big numbers.

If you're feeling lost, don't worry. We picked out 23 choice tidbits -- from the company's 248-page IPO filing (not including appendices) and other sources -- to get you up to speed.

1. IPO Numbers. At this time, the company aims to sell around 277.8 million shares, based on estimates from its IPO filing. Alibaba used a placeholder amount of $1 billion in the filing, but reports peg the amount to be as much as $15 billion to $20 billion. The company is said to be selling a 12 percent stake in its IPO. Given some of the valuations that have been mentioned of the company's worth, here are the amounts for what the IPO could bring in:

  • $235B valuation = $28.2B IPO
  • $200B valuation = $24B IPO
  • $168B valuation = $20.16B IPO
  • $135B valuation = $16.2B IPO

2. Amazon-eBay mashup. The company owns and operates a handful of e-commerce related businesses. Most notable are Taobao, a consumer-to-consumer marketplace similar to eBay; TMall, a shopping hub for brands, like Apple and Gap, to sell direct to customers; 1688.com, a wholesale site; Juhuasuan.com, a daily deals site; and Aliyun.com, a cloud computing service.

3. The man in charge. Co-founder and Executive Chairman Jack Yun Ma, 49, is a former English teacher from Hangzhou, China, who owns 8.9 percent of the company. He became an Internet businessman after seeing the power of a fledgling Web while visiting the US in 1995. Ma, who started Alibaba in 1999 with 17 other people, was CEO of Alibaba until last year when he retired (See Alibaba's current CEO in tidbit No. 6). The diminutive executive, who has been described as "elfen," has transcended his CEO status over the years and is seen as a spiritual leader to some of his employees. He has remained a central figure at Alibaba even after his retirement. Ma is married and has two children.

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STR/AFP/GettyImages

4. 102 years. Alibaba's vision, in its own words: "We aim to build the future infrastructure of commerce. We envision that our customers will meet, work and live at Alibaba, and that we will be a company that lasts at least 102 years." The company was drawn to that magic number because it spans the 20th century -- from the company's founding in 1999 -- to at least the 22nd century. Surviving that long, the company said, is a testament to a business model "built to last."

5. Users. In 2013, Alibaba had 231 million active buyers and 8 million active sellers. These buyers placed 11.3 billion orders, resulting in an average of 49 orders per buyer. The company's patrons account for 76 percent of China's estimated 302 million online shoppers.

6. CEO. When Ma retired, he handed the reins off to Jonathan Lu, a top Alibaba executive who also had his start in humble beginnings. Lu, who was 43 years old when he took over as CEO, is a former Holiday Inn manager who later started an Internet fax company. He joined Alibaba after it tried to buy his company. Lu is known as a soft-spoken leader, a foil to the high-profile Ma, who mostly operates behind the scenes.

7. Tickerless, for now. No word yet on the company's ticker symbol. Alibaba also hasn't yet decided between the New York Stock Exchange or Nasdaq as its exchange of choice.

8. Open sesame. Ma decided on the name Alibaba after he asked several people if they recognized it. Many of them associated it with the folk tale "Alibaba and the Forty Thieves," and the magical phrase "open sesame," which opened the mouth of a cave containing hidden treasure.

9. Underwriters. There are six investment banks leading the company through the IPO process: Credit Suisse, Deutsche Back, Goldman Sachs, JPMorgan Chase, Morgan Stanley and Citi.

10. Why not Hong Kong? Alibaba said listing on the Hong Kong exchange was the first and "natural" choice, but it chose the US instead because of China's rules concerning control over a company's board structure. Alibaba's talks with the agency that regulates the Hong Kong exchange, the Securities and Futures Commission, fell apart last September. Essentially, Alibaba's leaders wanted to be able to nominate board members, which is not permitted in China because it doesn't allow dual-class stock. (See current board members in No. 15).

11. Number of Employees. The company has a total of 20,884 employees (It's biggest US rival Amazon has a reported 88,400 employees.) Heres's a breakdown:

  • Engineering and data analysis = 7,306
  • Sales, marketing and business development = 5,189
  • Web operations = 2,781
  • Customer service = 2,241
  • Product management and user experience design = 1,491
  • Others = 1,876

12. Mobile. In 2013, Alibaba's site sold $37 billion worth of merchandise through mobile devices. The number of monthly active mobile users in December 2013 was 136 million. Alibaba's mobile sales account for 76.2 percent of all mobile sales for merchandise in China. While this figure is huge, a majority of the company's transactions actually come from orders placed on desktop PCs. That means Alibaba needs to guide its users to mobile devices like smartphones and tablets. Plus, regional competitors like messaging service Tencent and search engine Baidu are strengthening their mobile e-commerce offerings.

Alibaba plans to get more smartphone eyeballs by creating better mobile advertising, developing more location-based services using a smartphone's GPS, and developing ways to make paying for things on mobile easier.

The company also has a 30 percent stake in Chinese social media platform Weibo. The two will "jointly explore social commerce and develop innovative marketing solutions," according to the IPO filing.

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Alibaba CEO Jonathan Lu PETER PARKS/AFP/Getty Images

13. To the "Aliren." Ma wrote a letter to his employees, or the "Aliren" or "Ali people" on Tuesday before the company's IPO filing. In it he warned of the challenges ahead. "Alibaba will undoubtedly be confronted with unprecedented challenges and pressure due to the scale [of the listing], expectations, national boundaries, culture clashes, and regional politics and economics," he wrote, according to the Wall Street Journal. He continued, "Lying behind the massive allure of the capital market, there is unparalleled ruthlessness and pressure. In this market, only a small number of outstanding enterprises can maintain a gallop."

14. Apps. One of Alibaba's major pushes is connecting the online world with the offline world through the use of apps. Its multiple apps let users order food from local restaurants, look up movie times and order tickets, and make travel arrangements. Alibaba also has a mapping app and an app for its affiliate payment service Alipay.

15. The board. Alibaba listed four people to serve on its board of directors, which has a total of nine seats. They are Ma, Alibaba co-founder Joseph C. Tsai, SoftBank founder Masayoshi Son, and Yahoo executive Jackie Reses. Reses will step down when the company goes public. Alibaba plans to fill the other seats before the public offering is over.

16. Revenue. From March 2012 to March 2013, the company generated revenue of $5.6 billion. From March 2013 to December 2013, sales were $6.5 billion. Even without reporting the earnings from its fourth quarter, which runs from January to March, these figures show that sales are growing quickly.

17. Alipay. Alibaba's transactions are processed through Alipay, a PayPal-like affiliate service that is technically a separate company. The two split in 2011 because of regulation issues in China, and now Ma controls the separate entity. The spin-off caused contention between Alibaba and investors Softbank and Yahoo, who claimed Alibaba made the move without their approval. Alibaba is reportedly considering regaining its stake in the Alipay, though there was no mention of it in the IPO filing.

18. Stock pricing. It's still unclear. A lot of different factors will go into how the stock is priced on IPO day, which is expected later this year. For example, because of corporate governance issues like the Alipay incident, the company might choose to discount the shares 10 to 20 percent to attract investors worried about that risk, said Jay Ritter, a finance professor at the University of Florida.

19. Yahoo. The two companies have been intimately tied for almost a decade, but Alibaba's IPO will distance the two. In 2005, Yahoo co-founder Jerry Yang led a $1 billion investment in Alibaba for a 40 percent stake in the company. Today, that stake is 22.6 percent stake, and Yahoo has agreed to sell 10 percent of it. Yahoo can hold onto the rest if Alibaba's leadership allows it.

While Yahoo CEO Marissa Mayer -- who took over in 2012 -- attempts to turnaround the lumbering Internet giant, Alibaba's success has goosed Yahoo's stock in the last several quarters. But as Alibaba heads into the public market, the pressure is on for Yahoo's business to gain traction in its own right.

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Jack Ma in 2005 Handout, Getty Images

20. SoftBank. The Japanese telecommunications and Internet company is one of Alibaba's major, and earliest, investors. It currently owns more than 30 percent of Alibaba's stock and has the power to nominate one member to the company's board of directors. In 2000, SoftBank led a $20 million investment in a fledgling Alibaba, and the successful TaoBao marketplace is a joint venture between the two companies.

21. Groceries and more. The average customer on Alibaba's retail marketplaces in China buys items, on average, from 9.8 of its 115 categories. Those categories include clothes and beauty products. The company recently expanded to include specialty categories, such as groceries and digital entertainment.

22. Across borders. Alibaba aims to open up the barriers between buyers in China and around the world. The company will work on better payment tools for international transactions on Tmall Global, which sells goods from overseas brands to Chinese customers. With Aliexpress, which sells Chinese goods to other regions, the company plans to focus on markets in Russia, Eastern Europe, and South America, where there is a strong interest in Chinese products.

23. TaoBao villages. One Alibaba case study in its IPO filing plays up the success TaoBao has had in rural villages. There are about 20 of these "TaoBao Villages." Alibaba characterizes these as rural areas where at least 10 percent of the households run a business through the TaoBao Marketplace and generates over $62.3 million (RMB 10 million) in sales. A resident from DongFeng, a small village within the town of Shaji in the Jiangsu province (eastern China), started making furniture and selling pieces on TaoBao in 2006. The business grew quickly, spurring local investments in training programs and other operations. The growth prompted delivery companies to set up shop in Shaji, where furniture sales through TaoBao have top $1.2 billion.

CNET staff writer Nick Statt contributed to this report.

Editor's note: This story was originally published at 11:09 a.m. PT and has been updated.

Update, May 8, 9:48 a.m. PT: Clarified Alibaba's figures on mobile use.

 

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