It's Official (and a Big Deal): Alibaba Is Going Public

Chinese online powerhouse Alibaba is going public on the American stock markets. Here's what's going on, and why you should care.

May 11, 2014 at 1:30PM

Alibaba Logo
Image source: Alibaba.

Alibaba is one of the biggest, baddest e-businesses on the planet. The Chinese powerhouse just started the process of entering American stock markets, so it's about time to get familiar with this new name. In fact, If you own shares of Yahoo! (NASDAQ: YHOO) or Sprint (NYSE:S), I hope the Alibaba name already rings a bell, because their fates have been woven together for years.

First, let's say hello.

What started off as a Chinese exporting service for small businesses has grown into a sprawling empire over the last 15 years. These days, the Alibaba group includes everything from payment services and online shopping to cloud computing and Internet messaging services.

The company's official mission is "to make it easy to do business anywhere." This goal is so pervasive that the very company name was chosen for its broad appeal in every culture.

"I wanted to have a global company, so I chose a global name," Alibaba founder and executive chairman Jack Ma said in a 2008 Inc. interview. "Alibaba is easy to spell, and people everywhere associate that with "Open, Sesame," the command that Ali Baba used to open doors to hidden treasures in One Thousand and One Nights."

Jack Ma: Funny, clever, and shrewd
Ma is the key to Alibaba's fortunes. An English teacher with a mean entrepreneurial streak, he's got a bubbly sense of humor and more horse sense than California Chrome. Ma often reminds me of Warren Buffett's folksy, funny wisdom. Here, let me give you a few examples:

  • "There were three reasons why we survived [the first few years]. We had no money, we had no technology, and we had no plan. Every dollar, we used very carefully."

  • "Some people asked me this question: 'Jack Ma, you know nothing about technology. Why are you running an Internet business?' Then I asked a real estate developer: 'You know nothing about constructing a house. How could you be a real estate developer?' I feel the most important thing is that you show respect.

  • Alibaba is not about creating a large and successful Chinese company, but to build a brand for the ages. "If Alibaba cannot become a Microsoft or Wal-Mart, I will regret it for the rest of my life"

On that last point, Ma found a soul mate in Softbank CEO Masayoshi Son. Softbank was an early investor in Alibaba and owns about 34% of the company today. And Son won't settle for small potatoes, either. Just before closing Softbank's takeover of Sprint last summer, this is how he described his ambitions at a shareholder meeting:

"We will become the world's biggest company -- by all measures, whether by sales, profit, or market cap."

Yeah. These two mavericks kind of belong together.

Who gets rich?
Thanks to a long-standing joint venture that runs Chinese search and portal businesses, Yahoo! owns 23%. Jack Ma holds a 9% stake in his own company.

So when Alibaba taps the markets, these are the biggest immediate winners. The IPO will raise at least $15 billion, floating about 13% of its shares on the market.

Ma's portion of Alibaba would be worth more than $10 billion. Yahoo! stands to gain $26 billion or more, and much of that will be real money rather than paper gains. Softbank will end up with nearly $40 billion in Alibaba-based riches.

Yahoo CEO Marissa Mayer promised to "be good stewards" of this huge capital injection, without sharing details on how she'd manage it. That could mean a big one-time dividend, a time-honored tradition for receivers of sudden game-changing riches. Or Yahoo! could go on a buyout binge of epic proportions, perhaps paying its way out of a troubled search partnership with Microsoft.

For softbank, the Alibaba IPO will add paper value to a $20 billion cash hoard. Converting this $40 billion value store into usable cash would take some patience and long-term planning on the open market. Most of these shares will probably remain unsold, giving Masayoshi Son a large claim on Alibaba's future success.

It's not like Softbank can't use some extra cash right now -- the Sprint venture alone could easily suck up $40 billion if the carrier gets the green light to merge with T-Mobile USA and pose a real threat in the American market.

But patience is a virtue, and I think that Son and Ma would agree that the Alibaba story is just getting started. Cashing out now could be a huge mistake, like selling a lottery ticket before it wins the jackpot.

So Yahoo! and Softbank are in for a treat when Alibaba hits the markets. Further down the road, this filing may be a game-changing moment for Sprint as well. If nothing else, American investors are about to get a taste of Jack Ma's crazy huge ambitions -- and his proven ability to deliver on them.

Buckel up, America. This is going to be a fun ride.

Say goodbye to "Made in China!"
Jack Ma may be invading America, but we're fighting back. The Economist compares this disruptive invention to the steam engine and the printing press. Business Insider says it's "the next trillion dollar industry." And everyone from BMW to Nike to the U.S. Air Force is already using it every day. Watch The Motley Fool's shocking video presentation today to discover the garage gadget that's putting an end to the "Made in China" era, and learn the investing strategy we've used to double our money on these 3 stocks. Click here to watch now!

Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends BMW, Nike, and Yahoo! and owns shares of Microsoft and Nike. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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