After suffering small losses yesterday, U.S. stocks are slightly lower on Wednesday morning, with the benchmark S&P 500 and the narrower Dow Jones Industrial Average (DJINDICES: ^DJI ) down 0.3% and 0.16%, respectively, at 10:15 a.m. EDT. In company-specific news this morning, Chinese e-commerce mammoth Alibaba yesterday filed its prospectus for an initial public offering, the first step in what could well be the largest technology IPO in history. Yahoo! (NASDAQ: YHOO ) , which is selling 40% of its Alibaba stake in the transaction, is licking its chops. Meanwhile, Twitter (NYSE: TWTR ) offers a cautionary tale regarding how quickly enthusiasm for a hot IPO can turn to revulsion; after a near one-fifth drop in the stock price yesterday, it will be interesting to see how the shares behave today. They're down 5.4% in early trading, which suggests even the magnitude of yesterday's decline hasn't convinced investors that the stock has reached fair value yet.
Finally, Tesla Motors (NASDAQ: TSLA ) will release its first-quarter results after today's market close; the numbers -- and the market's reaction -- represent a key test for the niche car manufacturer and for the correction that has already affected a number of high-profile growth/momentum names.
The Alibaba story
Ecommerce + China = Growth. That equation tells a simple story that a company and its investment bankers ought to be able to sell to any investor. The big numbers in Alibaba's IPO prospectus are there on page 4 for all to see, and they are staggering; consider:
- $248 billion in "gross merchandise value" (the value of the goods sold on its Chinese retail platforms) in 2013 -- roughly half of Wal Mart's revenue in fiscal 2014.
- 231 million annual active buyers order an average 49 times annually.
Here are two other big numbers: $96.9 billion and $121 billion. That's the valuation range the company awarded itself as recently as last month, a twofold increase from the beginning of the year! As impressive as that sounds, it's significantly less than the estimates I've seen bandied around by financial journalists and analysts, according to whom the company could go public at a valuation of $150 billion or more. (I have even seen the figure of $200 billion crop up.)
Alibaba's offering will turn into a massive payday for Yahoo!, which could pocket $10 billion or more from the sale of 208 million shares (approximately 40% of its 22.6% shareholding of Alibaba). The windfall will be an interesting test of Yahoo! CEO Marissa Mayer's stewardship, as she balances calls from shareholders for a return of capital with growth/acquisition opportunities. Reducing its Alibaba stake will help put the spotlight back on Yahoo's own fundamentals. It will also provide a sterner test for Mayer -- I believe much of the run-up in Yahoo! shares over the course of her tenure is due to the "Alibaba effect," which she can claim no part in.
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