Watch out, Twitter, there's a new IPO on the block that threatens to steal your thunder: Chinese e-commerce giant ALIBABA COM LTD ORD (OTCMKTS:ALBCF) is gearing up for a public debut in New York.
Alibaba is the parent company of Taobao, which dominates 95% of the consumer-to-consumer (C2C) market in China, and Tmall.com, which controls 50% of the business-to-consumer (B2C) market. Both websites are tethered to its electronic payment system, Alipay. Alipay is similar to PayPal, but withholds payments in escrow until a product is delivered.
In other words, Alibaba is eBay Inc (NASDAQ:EBAY), Amazon.com, Inc. (NASDAQ:AMZN), and eBay's PayPal tied together in a single company that generated over $157 billion in sales last year -- more than double the annual revenue of eBay and Amazon combined. What's more impressive is that Alibaba's growth hasn't slowed -- simply compare its most recent quarterly top and bottom line growth to Amazon and eBay.
|Revenue Growth (y-o-y)||Earnings Growth (y-o-y)|
Alibaba is convinced that this growth is only the beginning. The company predicts that its total annual sales will reach $471 billion by 2017 -- a 200% increase from current levels that would top Wal-Mart Stores, Inc. (NYSE:WMT)'s annual revenue of $469 billion in fiscal 2013.
Although Alibaba originally planned its market debut in Hong Kong earlier this year, the Hong Kong Stock Exchange prohibits dual stock classes and other corporate structures that help founders maintain control of their company. Executive chairman Jack Ma, who founded Alibaba in 1999, has stated that he and his partners intend to retain full control over the company's operations after its initial public offering.
What is fueling Alibaba's growth?
There are two major engines powering Alibaba's growth -- the rising middle class in China and an increasing rate of Internet penetration. This next chart shows why Alibaba is so confident that it can grow its top line by 200% over the next five years.
|Online shoppers in China||219.8 million||277.0 million||322.1 million||374.9 million||423.4 million|
However, that's not to say that Alibaba will simply march straight into 2017 unopposed. The e-commerce market, especially the B2C front, is getting extremely fragmented.
Companies such as Jingdong 360 and Suning, which respectively control 21% and 5% of the B2C market, are keeping Tmall.com's growth in check. Another rising company to keep an eye on is E-commerce China DangDang, the largest e-book store in China. DangDang has tried to replicate Amazon's success by introducing its own Kindle-like e-reader to the market.
Despite these challenges, Alibaba will remain the 800-pound gorilla in Chinese e-commerce for years to come.