Alibaba Gains Momentum for IPO With Profit Margin Double Apple’s

Alibaba Headquarters | Source: Reuters

HUNGZHOU, China —Alibaba Group Holding Ltd., which accounted for about 2 percent of China’s gross domestic product, is building momentum for a possible initial public offering this year with profitability double that of Apple Inc.

China’s biggest e-commerce company posted a profit margin, which measures net income as a proportion of sales, of 48.4 percent in the March quarter, according to an earnings presentation by Yahoo! Inc., which owns a stake in Alibaba. Apple, the maker of iPhones and iPads, had a margin of 21.9 percent in the same period.

Profitability is being stoked by surging demand for services connecting businesses and consumers to each other across China with billionaire Chairman Jack Ma last year saying Alibaba could go public within five years. With analyst valuations of as much as $100 billion, the earnings growth is positioning Alibaba for a potential IPO, said Michael Clendenin, Managing Director at RedTech Advisors.

“All Alibaba has to do is to show that they can deliver one more quarter of strong margins,” said Clendenin. “Then they’re in a very good position for an IPO in the second half of the year.”

John Spelich, a spokesman for Alibaba, didn’t immediately respond to an e-mail seeking comment yesterday on the company’s profit margins. The company has no timetable for an IPO, hasn’t hired bankers and hasn’t selected a location for a prospective public offering, he said in a previous e-mail yesterday.

U.S. Rivals

Alibaba doesn’t sell merchandise itself. Instead, it runs platforms including Taobao Marketplace and Tmall.com that connect retail brands with consumers, a cross between Amazon.com Inc. and EBay Inc. It makes most of its sales from commissions and advertising.

Goods sold on Alibaba — ranging from consumer staples to cement and aluminum — were worth $180 billion last year, according to Eric Qiu, an analyst at Guosen Securities Co. in Hong Kong.

The Chinese company’s profitability is far higher than its U.S. rivals. Amazon.com, the world’s largest online retailer, had a net income margin of 0.51 percent in the March quarter while EBay Inc., the biggest auction site, had a margin of 18.1 percent.

Alibaba’s earnings more than tripled to $669 million in the quarter on sales that surged 71 percent to $1.4 billion. The company posted more revenue in the period than Sunnyvale, California-based Yahoo.

In 2005, Yahoo agreed to pay $1 billion in cash for a 40 percent stake in Alibaba, which also took control of Yahoo’s China operations. Yahoo owns about 24 percent of Alibaba, a stake it values at $8.1 billion, according to the presentation.

$100 Billion

While some analysts have put a valuation on Alibaba of as much as $100 billion, the company may be worth $62.5 billion, according to the median of eight estimates by investment banks and research firms compiled by Bloomberg since February.

A valuation of $62.5 billion compares to the $104 billion Facebook Inc. price tag prior to its listing.

“Alibaba is still in the early days,” said Mark Tanner, founder of China Skinny, a Shanghai-based research and marketing agency. “The curve is going to be a lot more vertical than a Facebook.”

Alibaba accounted for 70 percent of package deliveries in China last year, Ma said in a letter published in Feburary in a newspaper owned by the State Post Bureau. Sales on its two main platforms reached 1 trillion yuan ($163 billion) in 2012, while China’s nominal GDP reached 51.9 trillion yuan, according to the National Bureau of Statistics of China.

As earnings have surged, the Hangzhou, China-based company has expanded lending, secured financing and made acquisitions since Ma flagged the potential IPO last year.

The company last month closed the general syndication of an $8 billion loan, three people familiar with the matter said. In April, it agreed to pay $586 million for about 18 percent of Sina Corp.’s Weibo, China’s largest Twitter-like service.

“Jack Ma doesn’t want to get in the ring and fight with all these other guys,” said RedTech’s Clendenin. “He’s already figured it out that he can host the fight.”

By: Lulu Yilun Chen, Alan Wong; Editors: Robert Fenner, Aaron Clark, Michael Tighe