If you’ve turned on a TV or listened to the news in the past 24 hours, chances are you’ve heard of a company called Alibaba Group. It’s a Chinese company that’s soon going to hold an initial public offering (IPO) in the United States on one of the major stock exchanges. It hasn’t revealed which one yet, but it will probably be offered on either the Nasdaq or the NYSE.
Alibaba Group is a huge, huge company that probably isn’t familiar to everyone in the United States, outside of Wall Street, though. That’s pretty wild, considering it’s a major marketplace for exchanging all sorts of goods around the world.
Seriously – in a bit you’ll learn about some of the wild goods you can sell and buy on Alibaba, and they’re way cooler than what you’ll find on Amazon or eBay.
We’ve created a guide to help you understand a bit more about Alibaba, its history, what it does now, why Wall Street cares about the Alibaba IPO and why you should care. Let’s dive in to the five things you should know about Alibaba now.
1. It’s Massive
You know eBay. You know Amazon. But you don’t know Alibaba? Fair enough, but you should. In 2013, Alibaba, home to about 21,000 employees, handled more than $170 billion in sales, according to a March, 2013 article in The Economist. That’s more than the sales of Amazon and eBay combined at the time, and that’s a bit why the Alibaba IPO matters so much right now.
At its core, Alibaba.com is a global marketplace that allows companies to sell almost everything (provided it’s legal) to other companies. Much of it is bulk orders, too. Think of it as like a farmer’s market in some ways, except it isn’t just farm goods, you can find anything from bulk orders of skateboards and sunglasses to tractor trailers. We’ll discuss some of the more bizarre products in a later section.
There are a lot of working parts that make up Alibaba Group, including the Taobao Marketplace, which allows consumers to buy other products from consumers, sort of like eBay, but without transaction fees. In fact, Alibaba crushed eBay in China when it dropped the commission fees. Tmall.com, also known as Taobao Mall, is sort of like a combo between Taobao and Alibaba. Taobao is consumer-to-consumer like eBay, Alibaba.com is small business to small business, and Tmall is business to consumer sales. There are several other companies under the Alibaba Group, too, including 1688.com, a comparison shopping site called eTao, a payment service called Alipay and more.
In all, it’s a massive company, and some firms on Wall Street are already predicting that the company’s IPO could be one of the biggest tech debuts in history, with estimates that the firm is worth more than $200 billion. The IPO will affect major U.S. tech companies, too, especially Yahoo, which acquired a 40-percent stake in the company way back in 2005. At the time, Yahoo spent just $1 billion, and it’s going to get a major payout.
We’ll discuss that later.
2. The Name Is Based on Ali Baba and the Forty Thieves
Wondering what the heck Alibaba stands for? Where the name came from? It’s from Ali Baba and the Forty Thieves. In an interview with the International Herald Tribune, which has since disappeared from the news outlet but is still posted in Alibaba’s forums, co-founder of Alibaba Jack Ma explained the name. “One day I was in a San Francisco coffee shop, and I was thinking Alibaba is a good name,” he told International Herald Tribune. Here’s the full snippet:
“And then a waitress came and I said do you know Alibaba? And she said yes. I said what do you know about Alibaba, and she said ‘Open Sesame.’ And I said yes, this is the name! Then I went onto the street and found 30 people and asked them, ‘Do you know Alilbaba’? People from India, people from Germany, people from Tokyo and China… They all knew about Alibaba. Alibaba — open sesame. Alibaba — 40 thieves. Alibaba is not a thief. Alibaba is a kind, smart business person, and he helped the village. So…easy to spell, and global know. Alibaba opens sesame for small- to medium-sized companies. We also registered the name AliMama, in case someone wants to marry us!
3. You Can Buy Almost Anything From Alibaba
Ok, now for the fun part. You can basically buy anything (of legal nature) from Alibaba.com, and from all over the world. In fact, the site has helped Chinese farmers sell goods to people who they otherwise wouldn’t have had a chance to reach. Seriously.
How about 61,000 pounds of chilled Mackerel? Done. How about a waste plastic recycling plant with a three stage cooling system? For $40,000 to $70,000, it’s yours. Silver wedding rings? Buy ’em in bulk for $5 to $10 per piece. Oil drilling rigs, tons of rice, lumber, coffee beans and bulk sunglasses. If you can dream it up, you can pretty much find it on Alibaba.com.
That’s what’s fun. Go ahead, hit up the site yourself and see what you can find. There’s all kinds of good stuff.
4. Yahoo Will Get a Bunch of Cash From the Alibaba IPO
Yahoo owns about 208 million shares of Alibaba, according to Bloomberg. As we’ve already discussed, the company’s choice to acquire 40 percent of Alibaba for about $1 billion in 2005 is about to put a ton of cash in Yahoo’s pockets. In fact, Bloomberg estimates Yahoo may be sitting on about $10 billion once it sells off its shares in the company following the Alibaba IPO later this year. So what’s that mean? It could stand for its own editorial, but we can look at Marissa Mayer’s recent moves for a hint.
My best guess is Yahoo is going to use its cash to keep snatching up smaller companies, which it has been doing ever since Mayer took the helm. Tumblr cost the firm $1.1 billion, and while I doubt we’ll see another acquisition of that size, it’s not out of the question. Yahoo needs to catch up to Google in mobile and in search, and it will definitely use the cash to try to do so.
Mayer has used most of her acquisitions to push mobile apps, and to rebuild existing ones. That trend will likely continue. Chat is hot, and Yahoo Messenger is not, so perhaps we’ll see Yahoo try to boost its presence in that space.
Wall Street will be watching Mayer’s every move, however. What she does with the cash from Alibaba IPO will be absolutely key to Yahoo’s success in the future. Until now, Yahoo has been riding a lot on Alibaba’s coattails as the company has increased in value. Once Yahoo sells its shares, it’ll be all on its own again. That’s why Wall Street is paying attention to not only the Alibaba IPO, but Yahoo.
5. It Was Started By a Former English Teacher, Who’s Now a Billionaire
The history of Alibaba Group is kind of similar to a lot of the older U.S. tech companies, the sort that were started out of garages.
Alibaba’s CEO 49-year old Jack Ma is worth an estimated $12.9 billion right now, but he started out as an English professor who wanted to create an online marketplace where people could sell and exchange goods. As the story goes, Jack Ma raised about $60,000 from a few buddies and was able to turn that into the global trade empire that it is today.
Alibaba Online launched in 1998, received some investments from major banks over the next several years, and eventually received a major $1 billion investment from Yahoo. Now it’s heading to the U.S. for what could be one of the largest IPOs in tech history.
Quite a story, huh?