This week Chinese e-commerce company Alibaba is to float its shares on the New York Stock Exchange in what it expected to be the biggest initial public offering (IPO) of any company in US history.
Despite its massive size, you may well not have heard of Alibaba. So what exactly is Alibaba? What does the company do? And why is it worth so much?
What is Alibaba?
Alibaba is China’s largest retailer. It was founded in 1999 by Jack Ma with the launch of flagship online marketplace Alibaba.com, which connects Chinese suppliers of pretty much anything with buyers. It has since expanded to launch other websites - including Taobao and Tmail - which now dominate the e-commerce market.
It’s a bit like if you rolled eBay, Amazon and Google into one company. It acts as a middleman letting people and businesses use its platform to sell their own items in auctions (eBay and Amazon) and also makes money from advertising (Google).
Alibaba’s biggest website is now Taobao.
So what’s Toabao?
Taobao is essentially an enormous marketplace with more than 760 million product listings from 7 million sellers.
How does it make money?
Alibaba doesn’t charge any listing fees. Instead, merchants pay Alibaba for advertising and other services to make them stand out from the crowd. The ads appear alongside search results, much like Google.
How big is it?
Share of internet retail sales in China
It is responsible for 80 percent of all online sales in China - the world’s second biggest economy after the United States - and handles more transactions than eBay and Amazon combined. It also has major investments in the Chinese equivalent to Twitter (Sina Weibo), a YouTube-esque site called Youku Tudou and owns 50 percent of China’s most successful football club, Guangzhou Evergrande.
How much money does it make?
It turned over $6.73 billion in 2013 and is expected to turn over much more this year. As a comparison, Facebook made $3.7 billion in 2011, just before it had its own IPO which ended up giving the social networking company a value of more than $100 billion. More exciting is the company’s increase in profits, which have tripled in a year.
So what’s going to happen on Friday?
It’s going to release 368 million shares (with a starting price of between $66 and $68 per share) onto the New York Stock Exchange in order to raise around $25 billion in funds that it can then use to expand the company to the US and Europe. Depending on how much the shares trade for, this could give the company a valuation of between $150 billion and $245 billion. If it ends up with a valuation of $200 billion, it would be one of the most valuable technology companies in the world.
How come I’ve never heard of it?
Don't worry, you are in good company. Apparently 88 percent of Americans don't recognise the name either.