
Alibaba Seeks $21B in Highly Awaited I.P.O - dnetesn
http://dealbook.nytimes.com/2014/09/05/alibaba-seeks-21-billion-in-highly-awaited-i-p-o/?ref=technology
======
mmanfrin
I am still flabbergasted at how Yahoo is listed so low. If Alibaba hits their
target, Yahoo's ownership will be worth about $35bil. Yahoo's current market
cap is around $39bil (and is near it's 52week high). That means that the
market valued Yahoo at about $4bil as its own company, which seems terribly
low for a company that took in $1bil in earnings last call.

~~~
adventured
That's not how assets on a balance sheet are valued and represented in a
market cap.

In fact it's the Alibaba, Yahoo Japan, and cash positions that are discounted
down from their face value. Not the business of Yahoo (which receives a
multiple).

Cash is ultimately what the Alibaba position represents. Cash is always
discounted, sometimes heavily, on a balance sheet. It would be extremely rare
to see a public company receive a $1 to $1 ratio on cash to market cap.

Let me give you a simple example of this premise as it would apply to Yahoo.

Let's say they have $35 billion in Alibaba, and a $39b market cap. And let's
say they have $1.3b in earnings. They liquidate the Alibaba holdings, and
disperse all that cash to shareholders. So the $1.3 billion in earnings is now
receiving a market capitalization of $4 billion (3 times earnings)? Nope, they
would probably trade for 15 to 30 times earnings still (depending).

It's the value of the Alibaba holdings that is discounted.

There are a lot of easy demonstrations of this in action. Apple is an ideal
one. Their cash exploded like a rocket up to $150 billion, their market cap
and multiple compressed such that cash was 40% of their market cap (but that's
not what actually happened, the cash was heavily discounted).

~~~
refurb
Interesting. What is the reason for discounting cash so heavily? Logically
you'd think cash would be the last thing to be discounted.

~~~
adventured
Cash is not a great growth multiplier, and today it yields almost nothing. The
core business and its profit generation capabilities are what matters.

Think of it like food for a body. It's nice to have plentiful energy
availability in the form of food, a surplus of food around the house is
typical. However there's only so much you can realistically do with it, and
your body has an energy limit / potential limit. This is true about all
businesses in any given period of time, they can only do so many things
successfully. Cash is a required operational fuel, and sometimes it's useful
for acquisitions, but each dollar of cash you possess beyond the bounds of
your realistic capabilities or potential (the ability to put that cash to work
for the business and yield a sizable return), is worth less and less and less.

That's why Amazon has been allowed to keep such a large market cap, despite
the fact that for most of their history they had a terrible balance sheet, and
very modest cash.

If Google had $10 billion in cash instead of $60 billion, what would not
happen, is Google wouldn't see a ~12% discount applied to their market cap.
It's all about the earnings, the business, the future growth prospects in
advertising and mobile, and so on. Investors aren't primarily sitting around
wondering what Google might do with the $3 billion dollars they add each
quarter - they want to know how mobile search is doing.

Microsoft has been a great demonstration of how worthless cash often is to a
cash rich business (except as a discharge to investors). They simply can't
find anything sane (or permissible) to do with it all, and that has been the
case for 15+ years.

That's why stocks historically are traded by a multiple of their earnings.
That's why companies can have hilariously bad balance sheets, like Comcast or
as GM used to, and still have a reasonable market cap.

------
djloche
This is great news for people that want to sell their startup to Yahoo (who
will be flush with cash), or are seeking capital in general. Many people who
will be getting a huge payday at the IPO will be flush and soon looking for
their next investment.

------
pkaye
Why do they do the IPO in the US with a highly regulated financial industry?

~~~
adventured
Because the US possesses the world's largest total capital market, and the US
stock market is at an all-time high.

In short, because they can raise maximum money from the IPO.

------
chenster
It's a trap!

------
notastartup
I still don't know what Alibaba does.

~~~
Scoundreller
Their aliexpress.com arm functions like Ebay. I assume they take a commission
on each transaction (but they annoyingly ask for credit card information on
each transaction, ugh).

As for Alibaba, I also don't understand how they generate much revenue as a
non-fiduciary and non-risk-taking matchmaker that doesn't handle transactions
themselves.

~~~
notastartup
that's the thing. along comes this giant, and its suddenly worth more than one
of our biggest companies that has been around for decades? Did the average
Chinese person have their income suddenly raised? Something doesn't add here.

