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Chinese e-tailer Alibaba prices IPO at $68, raising $21.8B

In the largest initial public offering in US history, Alibaba raises funds to fuel its global ambitions.

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Alibaba founder Jack Ma. China's largest Internet retailer is about to make a splash in the US market. Getty Images

China's Alibaba has already made a splash with its initial public offering, but it's looking to make bigger waves by taking on the US e-commerce giants.

The online shopping company set its stock price at $68 a share Thursday, according to The Wall Street Journal, making for the largest US initial public offering ever. The company raised $21.8 billion from the IPO, a portion of which will go to investors like former CEO Jack Ma, Softbank and Yahoo.

The additional capital will be critical to Alibaba's plans to bolster its quickly growing and dominant business in China, as well as make inroads into other markets. That includes the US, where the e-commerce juggernaut's path will take it toe-to-toe with major US players such as Amazon and eBay.

While the showdown won't happen quickly, Alibaba is well positioned to make its move, with investments in multiple businesses in the US. Retailers are paying attention.

"It would be silly for anybody not to be thinking about Alibaba," Forrester analyst Kelland Willis said. "They clearly have some global ambitions and it's just another industry disrupter."

Alibaba owns and operates a handful of e-commerce related businesses. Most notable are Taobao, a consumer-to-consumer marketplace similar to eBay, and TMall, a shopping hub for brands, like Apple and Gap, to sell directly to customers. The company also runs Juhuasuan.com, a daily-deals site and Aliyun.com, a cloud-computing service. Unlike Amazon, it doesn't sell any products itself. Instead it makes money off advertisements and commissions.

Alibaba facilitated the sale of more than $240 billion worth of products last year, while sales involving Amazon and eBay -- combined -- totaled less than $200 billion worth of goods. Additionally, Alibaba's profit margin is above 40 percent. In contrast, Amazon and eBay combined is more like 15 percent. Amazon actually posted a $126 million loss in the last quarter.

From March 2012 to March 2013, Alibaba generated revenue of $5.6 billion. This year, its numbers continue to soar, with the company generating $2.5 billion in the last quarter alone.

Alibaba's massive IPO makes it a trailblazer, not only in the amount of money it's raised, but in how it's grown. The US has traditionally been both a large and lucrative market for retailers, but it's a model that has little success elsewhere. In other large markets, like China and India, there's been a lot of potential customers but less money spent. Alibaba has proved this can change.

"It put another stake in the ground for the argument that if you have a large domestic market, you can build a global company," said Sandeep Dahiya, an associate professor of finance at Georgetown University.

Last year, Alibaba's 231 million active buyers accounted for 76 percent of China's estimated 302 million online shoppers.

Ma wants to take Alibaba beyond its home country.

"After being listed in the US, we will develop our business in Europe and in the US," Ma told journalists Monday. "We will not give up the Asia market because, as I would say, we are not a company from China, we are an Internet company that happened to be in China."

Alibaba is already testing the waters. It launched 11 Main, a site featuring specialty boutiques for fashion, sporting goods, baby gear and tech gadgets. Willis said the invite-only site focuses on large images, making it visually pleasing, but the search filters are much more limited than eBay's or Amazon's.

The company used two of its acquisitions, auction-listing companies Vendio Services and Auctiva, to power the site. It's likely Alibaba will need to buy more companies, with existing merchants and vendor relations, to help its expansion in the US, according to a Forrester report.

"It would take either a major acquisition or a number of years for Alibaba to pull together a platform that could compete with major US companies like Amazon, Apple, eBay and Facebook," reads the report.

A look at Alibaba's other US investments gives a glimpse at what the company has planned for American consumers.

For retail, Alibaba has a stake in ShopRunner, a subscription-based shipping service for brands, as well as sports memorabilia site Fanatics and luxury-antiques site 1stdibs.com. Currently, Alibaba may be more interested in using these sites to bolster its product offerings in the Chinese market, but down the line the company could use the experience of these sites to shape what it does in the US.

Alibaba has also invested in several American mobile apps: ride-sharing service Lyft, mobile-app search engine Quixey and messaging app Tango.

The main benefit of these apps is data, Willis said. Alibaba can use the data gathered from these apps to discern where consumers go and what kind of apps they like.

Any substantial move from Alibaba is still several years away. For now, the company will focus on its continued growth in China. Ma knows that the e-commerce industry in the US is already full of heavy hitters and Alibaba will need to be smart about bringing something else to the table.

"E-commerce in the US is like a dessert. It's just supplementary to your main business," Ma has said. "In China, because the infrastructure of commerce is [so] bad, e-commerce becomes the main course."