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Alibaba Raises $21.8B in Initial Public Offering (nytimes.com)
213 points by SuperKlaus on Sept 18, 2014 | hide | past | favorite | 106 comments

Alibaba going for a higher selling price just makes the continued undervaluing of Yahoo itself increasingly hilarious. At some point, I would think someone will want to buy them for all of this free money they have sitting around.

  YHOO market cap : 42.3bn
  + liabilities : 3.7bn
  = 46bn (to own outright)

  Cash on hand = 1.1bn
  + Other assets = 15.3bn
  + Cash from Alibaba sale = 8.3bn
  + Value of remaining Alibaba stock = 22bn
  + Value of Yahoo Japan stock = 9bn
  = 55.7bn (of value, if you can unlock it)
So simply by buying them, firing everyone and selling everything in a firesale, without even cashing those checks from advertisers, you can make $9.7bn. Seems like a sweet deal.

No need to fire everyone. Yahoo made $38M net profit on operations last quarter. All they would have to do is maintain their current assets and employees and the owners get $160m/year in free cash. Then, using their effectively unlimited supply of capital in the form of Alibaba stock, they could make some very smart acquisitions (think for example of buying an instagram for $1b cash and growing it to what it is today) and they could pretty quickly be a $100b company.

I am not not sure if Marissa is up to the task, but they do have a legion of smart employees and an insane amount of capital. If they fail to build meaningful growth now, it's her fault.

They do still have some smart people, but I don't think anyone or any amount of money can turn things around for them in any meaningful way.

Their pre-Marissa acquisitions were almost universally wastes of time and money. It's too soon to tell about the recent acquisitions, but I don't see them making that $1bn back from Tumblr in my lifetime.

Yahoo is an also ran, constantly playing catch up and trying to emulate the successful behaviors of other companies. The negative public perception of a lot of their services in the technical community is mirrored inside the company, and there is nothing anyone can do to force positive change. Things that Google and Facebook and others announce were projects 3-4 years ago inside Yahoo, that never launched. Once you see that happen a few times, you get sufficiently disillusioned and leave. I don't think for all of Marissa's impact that this has fundamentally changed.

For example: Yahoo employees have to use Yahoo Mail for all of their work e-mail. The web interface only, with ads. It's a great exercise in dogfooding, IF you commit to rapidly iterating on the product to make it best of breed for your employees (not to mention real users). But that will never happen at Yahoo, there is no will to make an excellent product for a technically demanding audience.

Now your employee productivity suffers, which means every other product in the company suffers. Eventually you will have to let them go back to using e-mail the way they want to or they will find a way to screen scrape the messages into fetchmail in order to get back to work.

>Yahoo employees have to use Yahoo Mail for all of their work e-mail. The web interface only, with ads.

That is... terrifying. No wonder smart people leave.

> But that will never happen at Yahoo, there is no will to make an excellent product for a technically demanding audience.

That seriously leads me to ask me what the fuck the engineers are actually doing there if they're not improving a core product.

In my experience, there is an astonishing amount of work to do just keeping your head above water. Particularly in a corporate environment where you spend 90% of your time getting permission and buy-in for the other 10% where real work occurs. It's demoralizing to say the least.

> Yahoo employees have to use Yahoo Mail for all of their work e-mail. The web interface only, with ads.

I don't know where you got this from, if it was true but no longer isn't, or if it's only true in parts of the company, but I was just there for 13 months after an acqui-hire and no one ever made me or anyone on my team use Yahoo Mail.

The mandate to use Yahoo Mail for corp users is from the last month or two. Perhaps it does not cover the entire company, but my understanding was that it did.

Yahoo corp mail was previously Exchange (!). Also awful, but at least it supports IMAP.

OK, nevermind -- your information is newer than mine. I escaped Yahoo late last year, so I wouldn't've heard about this.

Why don't you think Marisa is up to the task? She seems more than capable to me, and has done a remarkable job leading Yahoo so far.

From an IQ perspective, I think she is probably among the top 5 executives in the Valley - likely smarter than Sergey Brin or Larry Page, her former co-workers at Google. She's brilliant. I'm only going by her performance thus far - for whatever reason, most of her acquisitions have been blunders. There are valuable start-ups all around - it doesn't make sense to me that Yahoo can't find them. I realize that there is a negative perception surrounding Yahoo, but money is money and many teams will take the deal if enough is offered. It's also her responsibility to turn that negative perception around by making some smart, successful acquisitions.

I would never just write someone with her intellect off - but she does still have something to prove. Hopefully she can do it.

On the basis of what evidence do you make such grand claims about her intellectual abilities?

Well, for a start, she paid someone to ghost write a book about her.

Everything I have read/seen/listened to about her indicates she is brilliant (including the opinions of her co-workers, watching speeches she has given etc). But intelligence and business aptitude are not synonymous. Pretty sure thats what I said. I wasn't backing off my opinion.

Truth be told, I was hoping for a more substantial answer, something that I could look at that unequivocally shows her "brilliance". The public statements of her's that I'm familiar with are pretty hum-drum.

a. You don't have to get immediately defensive when someone question it. Learn to stand your opinion. He could be just another shill and can't do anything. b. "likely smarter than Sergey Brin or Larry Page" -- This make think either you are high or some mumbo jumbo junior.

Like what ? Firing 1000 people , removing WFH option , buying companies of no value ? Amount of shill-ing-ness I smell is just ridiculous. Also be polite next time.

I think you've got a mistake with how you've figured in liabilities. They should be subtracted from assets, not market cap. So, using your numbers, the difference is closer to $10b, not $17b.

You're right, I adjusted the numbers a bit. That leaves $9.7bn of free money laying around, if you can get at it.

(minus taxes and discounts on the value, etc.)

You also forgot to include the money you have to pay for the lawsuits you will get for doing it. /j

After 9.7B in "profit" those legal bills as significant as they could be would just be a rounding error.

Corporations don't pay tax. Sheesh. ;)

There are still a lot of tax questions. Some explanation:


> Investors now value Yahoo on a sum-of-the-parts basis. The core business could be worth $8 a share and its cash and Yahoo! Japan stake could be worth another $8 a share (assuming a full tax bite on the sale of Yahoo Japan). The 140 million shares of Alibaba to be sold in the IPO should net after taxes around $6 billion, or $6 a share. That totals about $22 a share.

> So, Yahoo's share price direction probably hinges on the value of the remaining Alibaba stake—based on the Alibaba share price—and the tax treatment of the likely sale or disposition of that stock.

> Bulls argue that Yahoo's shares could trade into the $50 range if Alibaba appreciates sharply after the IPO and Yahoo can find a way to get its remaining stake to holders in a tax-efficient way. This also suggests that Yahoo shares could find support around current levels given the value of that Alibaba stake.

To briefly follow up now that Alibaba had its first day of trading and shot up in value:

  YHOO market cap : 41.86bn
  + liabilities : 3.7bn
  = 45.56bn (-0.44bn)

  Cash on hand = 1.1bn
  + Other assets = 15.3bn
  + Cash from Alibaba sale = 8.3bn
  + Value of remaining Alibaba stock = 37.7bn
  + Value of Yahoo Japan stock = 9bn
  = 71.4bn (+14.3bn)
Now we're at 25.84bn of "free" money. Many, many companies are valued at well above their on-hand cash and assets (sometimes tens or hundreds of times higher), so I continue to think that Yahoo is severely undervalued on paper.

If people are so negative about Yahoo that they would rather leave $25bn laying on the ground rather than be associated with them, I think Yahoo has an insurmountable obstacle to future success.

Your "other assets" line seems too high....I believe you're double counting their Alibaba & Yahoo Japan stakes...."other assets" s/b $11.3B, no?

'Total assets' is listed as 16.45mm, which includes 1.1mm in cash and 5.59mm in long term investments. So yes, I suppose if they are counting Alibaba / YJ stock in long term investments (which makes sense), then it is being double counted.

You are kind of assuming that you can have a "firesale" that realizes the full current market value of the $31 billion in Alibaba and Yahoo Japan stock. That's somewhat improbable.

True, this is very naive and presumes you can sell everything for their accounting values without moving the market price or people realizing what you're doing.

However, $17bn is a pretty big window of error, and this isn't even taking into account the crazy notion that you could keep running the actual business. It has revenues of $1bn a quarter, nothing to sneeze at.

> However, $17bn is a pretty big window of error

Is it? Sell everything else at accounting value and realize a little under half price on the combined Y! Japan and Alibaba stock, and suddenly you are merely breaking even.

> and this isn't even taking into account the crazy notion that you could keep running the actual business. It has revenues of $1bn a quarter, nothing to sneeze at.

Revenues aren't profits. And Yahoo's net income is all over the map ($1.37B in 2013, $3.95B in 2012, $1.05 in 2011) -- there's no clear trend in the value of running the business, and I think one of the reasons Yahoo stock is so apparently undervalued given a simplistic look at assets and liabilities is the market doesn't really think Yahoo! has much of a roadmap for running the actual business.

> $3.95B in 2012

That year they sold some $BABA, that's why the revenue was higher.

Stock is not cash. You can't sell it at the current value price. You can't even sell 0.1% of it without driving the price to zero. The liquidity is just not that large.

Consider that if I have a bunch of gold bars sitting in a vault somewhere, I don't have to sell them to make money off of them. I can borrow money against their perceived value, currently practically for free.

This becomes particularly interesting if I can buy $100 of gold bars for $50. Even if I can't sell them, I can use them to my advantage.

Where can you possibly borrow $22 billion with stock as the collateral?

Acquisitions with much of the purchase being done in stock. My understanding is that this is very common.

Even if your understanding was true, it still supports my original statement - stock is not cash, and you can't easily get much cash for it on the scale of tens of billions.

The first part of your sentence makes it sound like you strongly disagree with my understanding. Can you elaborate?

My point wasn't that you can turn stock into cash, but that you can turn stock into some of the same things that large amounts of cash might be used for -- acquisitions.

Alibaba sold a hell of a lot more than 0.1% of itself today. About 125 times that number. And the price wasn't driven to zero. There's a lot more depth in US equities markets than you think.

"There's a lot more depth in US equities markets than you think."

That's a keeper!

Liquidity is a high-velocity component to markets. There's more depth that the sub-OP credits the market with at the present instant. But it really can disappear fast. I think there's actually a lot less depth to US equities than most people think, over the long run.

IPO is a special event. You can't compare it to a regular stock state.

You are technically correct that you can't just login to your broker one day and dump 5% onto the market - but there are ways to sell that amount of stock without crashing the price. A Secondary Offering is one way. It's basically doing an IPO over again but for an already public company. You can also sell directly to hedge funds/mutual funds etc. They have the opposite problem, wanting to acquire a large stake but being unable to because submitting an order for 0.1% would send the price to infinity.

1) First off, what's so different about an IPO? The road show? Please. Investors aren't plunking down ~20B for a piece of Alibaba 'cause of a slick powerpoint presentation.

2) Secondly, companies routinely do secondary sales in which they sell stakes of themselves far in excess of 0.1%.

Secondary offerings are not routine for any given business, even if they occur regularly in the broad market among thousands of companies.

It's rare for a company to do a secondary offering.

The big issue seems to be whether you can trust management not to burn away the cash from Alibaba on unwise acquisitions, initiatives, and so forth.

It's a common problem in the stock market when you find stocks selling for less than your analysis of liquidation value. You may be right that at this snapshot in time, that's actually the case. But since you're a minority investor without control, you can't force a liquidation or breakup of the company at your convenience.

If you include a 35% tax on the sale of Alibaba shares, then the values drops to $45.1B.

http://online.wsj.com/articles/alibaba-ipo-to-give-yahoo-win... http://blogs.wsj.com/digits/2014/07/21/how-yahoo-could-skirt...

But how much would the Yahoo Japan stock really be worth if the world knew somebody was liquidating the entire Yahoo company?

I think that's your $9B profit right there.

Why would they change? Except for sharing the name and some cross stock holding, they are separate companies. Last I checked, Softbank was the majority stockholder, but I'm guessing that has changed since Yahoo Mobile launched.

Heh, and people nit picking that you can't get 17B$. Sheesh, lets just sell the crap for 10 cents on the dollar and get $1.7 BILLION in cash for "free". That would make a hell of an entry on the old 1040

   proceeds from short term capital gains: 1,700,000,000
I'm sure someone at Goldman Sachs is all over this :-)

> 1,700,000,000

You missed a few digits there ;)

This reminds me of when AAPL was getting close to the value of cash and assets, pre-Jobs return. Was the perfect time to buy AAPL, but of course not clear whether Yahoo has a Jobs at Apple kind of turnaround in them.

Until Mayer unveils a product as impressive as the iMac (or iPod), I wouldn't jump on that stock just yet.

true. But it is going to be too late by then.

If you had invested just after Jobs unveiled the iMac and the first iPod, you would have done quite well.

This has been covered ad nauseum elsewhere in the financial press, but you're assuming Yahoo pays zero corporate taxes on its sale of Alibaba shares. That's not how the world works. You need to deduct something like 40% from the value of the "Cash from Alibaba sale" and "Value of remaining Alibaba stock" and probably also "Value of Yahoo Japan stock". My bet is if you do that, you'll come up with a number that makes sense given Yahoo's market price.

Zero chance any real company will pay 40% in taxes on stock sales. They have their ways.


Capital gains are 20%, not 40%. And these are most assuredly capital gains. On $8b they'll pay $1.6b in taxes.

You can't pay face value on an acquisition of a company like Yahoo.

Try adding about 25% to 40% as a premium.

There went your calculated profit.

> Value of remaining Alibaba stock

Who'd want to buy stock from a company firing everyone and shutting down?

Yahoo, not Alibaba.

I believe Yahoo the company is still strong but the stock has probably topped out currently. Most of the good news have already factored into the price. I sold all my shares couple days ago, on the basis of selling ahead of a definite news event. It had been a good run-up since got it on the teen's.

What are the 15bn of 'other assets'? Presumably they're not liquid assets, so you'd need to figure out whether their value on the open market would be anything close to book value.

So should I buy some Yahoo stock?

Why would that follow?

Because if all shares of the company is valued at X, and the tangible assets of the company are valued at Y, and X < Y, then isn't Yahoo's stock objectively undervalued? I'm not some sophisticated investor, I just buy index funds, but isn't this kind of objective valuation of companies the basis of value investing a-la Warren Buffet?

But you can't buy 100 shares of Yahoo! stock then turn 24 of those shares into Alibaba stock. Just because Yahoo! owns a 24% stake in Alibaba doesn't mean your ownership of Yahoo! is fungible with ownership of Alibaba.

No, the discount is due to the fact that the market believes there is a risk that Mayer will misuse the money. More generally, no, you are not smarter than the market.

Never said I was. That's why I buy the index funds. :)

I'm in someone give me a $46Bn loan!

Gosh....that's barely more than WhatsApp. Woulda done better selling it to Facebook.

More seriously, the Economist put a valuation at $55-$120b. This puts it at $168b. Or 9 WhatsApps. The IPO was expected to raise $20b, so this is really good.

It took 3 years after founding in 1998 to reach profitability.

It defies most conventional notions of a startup, despite having started in somebody's apartment. It's unbelievably unfocused, it does pretty much every kind of business you can do on the Internet.

It might be one of the first Asian-style conglomerates to be born on the Internet.

There are plans for it to open brick and mortar stores.


>It defies most conventional notions of a startup... It's unbelievably unfocused, it does pretty much every kind of business you can do on the Internet.

It defies the Silicon Valley notion of startup. China's internet market is still new, and Alibaba is like Yahoo in the old days - it does everything online.

Hopefully it doesn't turn out like Yahoo.

It sells more product than both ebay and amazon combined.

While we're having fun with numbers that don't make much sense to compare given the differences in businesses...

Apple generates ~1,000% more net income than Alibaba (projected 2014).

Amazon has about ~900% more revenue than Alibaba.

Apple has about ~2,000% more revenue than Alibaba.

eBay does 100% more in revenue than Alibaba

Crazy part is how much illegal stuff they sell. (knockoffs and fakes)

Its not fair comparing Amazon's revenue vs Alibaba. Alibaba doesn't sell products they take ad fees. Which means the product price itself isn't part of the revenue. It is more fair comparison with Ebay's revenue numbers.

It doesn't turn like Yahoo.

Yahoo made the super wise decision to buy part of Alibaba a few years ago, and now the whole Yahoo is worth nothing more than its share of Alibaba!

and if you look at Alibaba history, Jack Ma was admittedly one of the speculators who rushed online in 1999 to make a buck. Silicon Valley historians heads must be spinning :)

> It's unbelievably unfocused

That's because Jack Ma is unbelievably focused.

And also because he does not face competition.

$20b is money raised. The market cap is expectd to be 160-$200bn, almost half the size of Google.

> It's unbelievably unfocused, it does pretty much every kind of business you can do on the Internet.

This is standard in China, as well as other Asian nations, which have high-context cultures[0]. People in high-context cultures value familiarity more than people in low-context cultures. What we see as a lack of focus is seen by Chinese consumers as part of Alibaba's value proposition.

0: http://en.wikipedia.org/wiki/High-_and_low-context_cultures

This kind of Orientalist armchair psychology is standard in high-bullshit cultures like ours[1].

The reasons for Alibaba's success might have more to do with the unique political and economic conditions that obtain in China than any special feature of the Chinese consumer mind that makes them favor lack of focus.

> This kind of Orientalist armchair psychology is standard in high-bullshit cultures like ours[1].

Do you actually know anything about psychology, or are you just talking out of your ass? Because the idea of high and low context cultures is not a recent or controversial one, and high context cultures are not all "Oriental." In fact, they can be found in southern Europe (not to mention other non-Asian parts of the world) as well.

> The reasons for Alibaba's success might have more to do with the unique political and economic conditions that obtain in China than any special feature of the Chinese consumer mind that makes them favor lack of focus.

1. Similar conglomerates exist in most other Asian nations as well, so it can't be explained away by China's politics or economics.

2. So basically you have no idea of your own as to why Alibaba is successful, other than for the vague claim of "unique political and economic conditions." If anyone is contributing to the high level of bullshit in our culture, it would definitely be you.

> Do you actually know anything about psychology, or are you just talking out of your ass?

Personal attacks are not allowed on Hacker News.

I never attacked the commenter, I only criticized his comment.

Perhaps it would be helpful to explain the standard we apply. The comment was aggressive ("actually know anything", "out of your ass") and personal ("you", as opposed to "this" or "it"). That combination is particularly to be avoided.

There is no such thing as high and low context cultures. ALL culture is high context.

See my response to the other child comment.

Well....you guys have to look at the bigger picture: Alibaba was rejected by HK stock market the first time around, then Jack decided to take it to NYSE. Of course 21B is nothing in comparison to the other big brothers like Facebook, but ask yourself this question: what really is Alibaba doing in China? For one, Alibaba is about trading on the international scene, and its seed Taobao is like eBay China version; then they are into car manufacturing as well, not to mention Alipay being the paypal of modern day China....clearly, that 21B he raised can't even cover a lot of the expenditures for development. What Jack really is doing is to get his company that global recognition. Any of you can name ONE brand/company that based in China on top of your head? Well, that's what Jack is trying to do. You think he's unfocused? How about this: for someone who owns the e-commerce platform of the world's 3rd biggest country, he is utterly focused on becoming "China's international brand." Don't forget, China is the jumping board, and Jack is the pioneer. Once he claimed first, who will remember the ones from the subsequent ranks?

This seems like a pretty bad deal for foreign investors.


I don't know why more people aren't talking about this. The Motley Fool guys went over this in their podcast yesterday. I'm in full agreement.


"[Yahoo] will have raised nearly $8.3 billion through the offering"

If I'm reading that right Yahoo stands to triple their cash position almost overnight which today stands at around $4b.(1)

Given Marissa Meyer's appetite for acquisitions this puts them into a potentially interesting new ballpark of scale.

(1) http://finance.yahoo.com/q/bs?s=yhoo

You would have to consider the after-tax amount, which is going to be a bit less...around $5-6 billion.

They could buy an Instagram or two.

They should buy Buzzfeed

This a pretty solid recommendation. Mayer has pivoted yahoo strongly towards content and BuzzFeed is pretty much the most solid content start up out there right now. It sounds like an obvious purchase.

You judge a merger by how the combination will unlock new value. Just because the business models are similar doesn't necessarily mean it's a good acquisition. I don't see how BuzzFeed can benefit with Yahoo other than perhaps accessing its ad sales network?

Here's a link to the Alibaba IPO Roadshow Presentation, https://www.youtube.com/watch?v=sa9R2SqZsHM

I highly recommend watching it. To save time, watch it on Chrome at 2x speed.

Sorry, how do you watch it at 2x speed on in Chrome?

1. Enable HTML5 at http://youtube.com/html5

2. Click the gear icon in the bottom right of the player and change selection in the "Speed" dropdown

request HTML 5 player through Youtube.


P.S. You could easily google this!

Planet Money had a decent piece on Alibaba recently: http://www.npr.org/blogs/money/2014/09/03/345310125/episode-...

> Though it did not claim the title of biggest initial public offering ever, Alibaba will still lay claim to having held one of the biggest stock sales on record, surpassing offerings from Facebook and General Motors.

If you're curious (I was), Wikipedia puts the Agricultural Bank of China as the largest IPO, with Facebook at number 6.


Yet it was America's biggest IPO to date, right before Visa Inc. with $19.7B. The other three went public in China (Hong Kong Stock Exchange).

A bit off topic: Is there a good site to keep track of all tech IPOs and including historical data and upcoming/withdrawn IPOs?

Professor Jay Ritter of the University of Florida is a subject matter expert in this area:



Includes withdrawn, priced and filed IPOs. Very clean data, straight from SEC Edgar filings.

Yahoo can buy 30 tumblrs with the alibaba money. That's neat.

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