Alibaba's IPO: 3 Things You Should Know

Alibaba will soon launch one of the most anticipated IPOs of the year. The China-based company owns a number of e-commerce sites that connect merchants and consumers that's more similar to eBay (NASDAQ: EBAY  ) and Etsy than Amazon.com (NASDAQ: AMZN  ) . Alibaba has been valued between $170 million-$250 million by analysts ahead of the IPO, but what are some quick facts that investors need to know before diving in early?   

1. Key Metric: GMV 
Gross merchandise volume, or GMV, serves as one of the key monetization metrics for online retailers. GMV represents the total sales value of merchandise sold. Alibaba has a staggeringly high GMV compared to the competition. 

Alibaba's SEC filing reported GMV of $248 billion last year. The GMV for eBay -- excluding vehicles -- totaled $76.5 billion for the same period. Amazon reports straight revenue rather than GMV. 

Mobile GMV remains a growth area for Alibaba. The company reported $37 billion in mobile GMV last year, which accounted for about 15% of overall GMV. Compare those figures to eBay's mobile GMV of $22 billion-or 40% of total GMV. Alibaba still has room to gain more mobile users, though the fact that Alibaba accounted for over 72% of total mobile GMV in China means that the growth will likely come from other regions. 

Source: Alibaba 

2. Other metrics useful mostly for self-comparison Alibaba's F-1 filing contains a few prominent metrics that give a more in-depth look at business operations. The company touted 11.3 billion annual orders, 231 million active annual buyers, and 49 average annual orders per active buyers, and that last metric in particular will help investors check Alibaba's improvement over time.  

Investors shouldn't try to use these metrics for quick industry comparisons. Amazon and eBay don't report the same metrics in the same way so any potential comparison would come out as a rather apples-to-oranges comparison. That doesn't diminish the potential of the metrics as Alibaba continues to release more financial information; simply stick to the top-line metrics like revenue -- or GMV -- for industry comparisons. 

3. Initial U.S. investment might look soft                          
CovergEx conducted a survey of 322 financial industry professionals and gauged the general interest in buying Alibaba. Overall, the respondents felt that Alibaba was a good long-term investment, but only 43% indicated an interest in buying Alibaba at IPO. The reason had more to do with the region than the company at question. 

Only 30% of overall ConvergEx respondents owned shares in a Chinese company. Buy-side respondents were over 20% more likely to want in on the Alibaba IPO if they already owned equities in China. The hesitancy to take that first step into investments in the region could lead to weaker-than-expected U.S. investor interest. 

Or, as ConvergEx Chief Market Strategist Nicholas Colas noted, a strong initial performance from Alibaba might provide the push needed for investors to take the chance on China. The deciding factor may well come down to how well Alibaba performs out of the gate, both in the acceleration of share price and the initial earnings releases.  

Foolish final thoughts                                                            
Alibaba will likely accelerate following IPO with or without a strong initial interest from U.S. investors. Keep an eye on the GMV for industry comparisons and average orders per active buyers for a health snapshot aside from the obvious metrics like revenue and net income.

Long-term investors nervous about investing in China might want to use this new listing as a stepping stone into that market. The cautious will likely have plenty of time to keep an eye on Alibaba's metrics and still make it in at a decent price. 

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  • Report this Comment On July 09, 2014, at 10:50 AM, jaxgab wrote:

    In the first paragraph, the author makes reference to Etsy, which is a small privately held company that owns the web site named www.etsy.com. Comparing Alibaba to Etsy is a real stretch.

    A recent Wall Street Journal web page (projects.wsj.com/alibaba/) reports that Alibaba's GMV for 2013 was $ 248B, which compares to Amazon at about $ 100B and Ebay at about $ 76B. One big difference between Amazon and Alibaba is that Amazon sells some of their products out of fulfillment centers, Alibaba does not. Alibaba is also able to generate a relatively healthy profit compared to Amazon ($ 3.7B vs. .3B for 2013, respectively).

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