I usually don’t write about any company more than once a week, and certainly not twice on the same day. But today I’m making an exception for the upcoming IPO of Alibaba, which will finally come to an end with its trading debut on Friday. The latest news bits in the run-up to what’s likely to be the world’s biggest IPO of all time have media reporting that Alibaba may raise the upper end of the price range for its shares, allowing it to raise even more money. At the same time, Alibaba’s talkative and charismatic founder Jack Ma has made a surprise appearance in Hong Kong as part of the company’s road show, where he was warmly greeted by investors.
During the Internet dot-com bubble of the late 1990s, former US Federal Reserve Chairman Alan Greenspan used the expression “irrational exuberance” to describe the sudden loss of reason that many investors showed as they paid billions of dollars for loss-making Internet companies. I would say that a similar phenomenon is now taking place with Alibaba’s IPO, though perhaps it’s not quite a severe as the dot-com bubble since Alibaba’s financial position is quite solid.
All that said, let’s start our daily IPO countdown with the latest reports that say Alibaba is considering raising the upper limit of its price range to $70. (Chinese article) That’s quite a lift from the original range, which had Alibaba aiming to price its new American Depositary Shares (ADSs) at $60-$66. If it raises the range, prices shares at $70 and sells all of its share overallotment, its already astronomic fund-raising total could rise from a current maximum of $24.3 billion to as much as $25.8 billion.
That figure would easily eclipse the previous record for the world’s largest IPO, which was set in 2010 when Agricultural Bank of China (HKEx: 1288; Shanghai: 601288) raised $22.1 billion through a dual-listing in Hong Kong and Shanghai. The offering would also easily eclipse the previous record holder for an Internet IPO, which came when Facebook (Nasdaq: FB) raised $16 billion through in its 2012 listing on the Nasdaq.
In the other latest Alibaba news bit, Asian investors got a new reason to become more euphoric when Jack Ma made an unannounced visit to an investor road show meeting in Hong Kong. (Chinese article) During the show, Ma reportedly said Hong Kong was always his first choice for the IPO, and indeed Alibaba lobbied hard to get a rule exemption it was seeking to make such an offering possible. But in the end Hong Kong wouldn’t grant the exemption, and Ma said Alibaba was forced to go to New York.
Probably the biggest significance of Ma’s Hong Kong visit is the fact that he had time to make the trip at all in the middle of his extremely busy schedule. The visit shows that the IPO probably already has more than enough subscribers in the US, and indeed media have reported the company plans to end its road show a day earlier than originally planned. Thus Ma seized the opportunity to come back to his preferred IPO location and stir the pot just a bit more to build up even more hype and euphoria around his offering.
So, if this upcoming blockbuster offering is another case of “irrational exuberance”, then what can we expect? In this instance I don’t expect to see the bubble burst suddenly, but rather gradually over the next few months after the stock begins trading and reality sets in. That could mean we might see a nice jump in Alibaba’s trading debut, perhaps as much as 10-15 percent, before the stock finally settles into a lower range over the following months that values it at round the same levels as rival Tencent (HKEx: 700).
Bottom line: Alibaba’s IPO is likely to price at or near the top of its range and could get a nice jump in its trading debut, but its shares will gradually sink over the next few months as the hype fades.