Alibaba Group Holding may price its initial public offering about 22 percent below analyst valuations, according to a survey of estimates, a move that could avoid repeating the listing flop of Facebook.
China's biggest e-commerce company may set the IPO value at $154 billion, according to the average estimate of five analysts surveyed by Bloomberg. Those same analysts see the company's post-listing valuation as $198 billion.
Alibaba's IPO may be the biggest in U.S. history when it lists on the New York Stock Exchange as the company attracts investors keen to tap into the surging Chinese economy and the world's biggest pool of Internet users. Valuations of the company surged from $62.5 billion about a year ago after earnings nearly tripled, with a listing discount seen as a way to avoid the plunge that greeted Facebook's debut in 2012, said Li Yujie, an analyst at RHB Research Institute Sdn Bhd in Hong Kong.
Discount to investors
"Alibaba is raising so much money, for the market to support that, it's logical that it provides some discount to investors at the time of the IPO," Li said. "It has a lot of potential, but investors want to see a few quarters of results and also see how the company will strategically place itself."
Li said Alibaba, based in Hangzhou, could have a valuation of $200 billion, though it might be $50 billion short of that at the time of the IPO pricing.
Florence Shih, a Hong Kong-based spokeswoman for Alibaba, declined to comment.
The IPO is set to eclipse Facebook's as the biggest in the technology sector, when the owner of the world's largest social network raised $16 billion in 2012 selling stock at $38 apiece. Alibaba will wait until September to conduct the IPO, a person with knowledge of the matter said.
Facebook had a price tag of $104 billion at the time of its IPO and went on to lose half its market value as investors worried about slowing growth and the company's mobile strategy. The stock has since recovered.
"We believe the biggest controversies on Alibaba are around mobile monetization, the evolution of margins, and capital allocation," said Carlos Kirjner, a New York-based analyst at Sanford C. Bernstein & Co.
An IPO pricing for Alibaba of about $150 billion "would be attractive," said Kirjner, who values the company at as much as $210 billion.
Alibaba may be worth $187 billion, according to a survey of 11 analysts by Bloomberg, including those who didn't expect an IPO discount. The company was valued at $168 billion in an April survey of 10 analysts.
The company, which filed for its U.S. IPO in May, could sell a 12 percent stake, according to people familiar with the matter. That would mean Alibaba could raise as much as $18 billion at the discounted analyst valuation or more than $22 billion at the higher estimates.
Yahoo, Alibaba's second-largest shareholder, last week said it will return half the cash it reaps from the IPO to shareholders after scaling back the amount of stock it plans to sell. The Sunnyvale-based Web portal has a stake of about 23 percent, while SoftBank, the Japanese wireless carrier, owns more than 30 percent.
Alibaba and its backers are likely to account for more of the IPO and make up the difference, people with knowledge of the matter have said.
Gene Munster, an analyst at Piper Jaffray, topped the estimated valuations at $221 billion. Alibaba's profit rose 32 percent to $893 million in the March quarter.
Alibaba operates platforms including Taobao Marketplace and Tmall.com that connect retail brands with consumers. The Chinese company makes most of its sales from commissions and advertising.
Alibaba's effort to attract smartphone users is a key plank of its growth strategy, and the company had 163 million mobile monthly active users in March, according to its filing to the U.S. Securities and Exchange Commission.
Mobile transactions accounted for 27.4 percent of Alibaba's total transactions in the three months ended March, up from 19.7 percent in the previous quarter, according to its filing.
China has 618 million Internet users, greater than the population of any other country except India, and could exceed 850 million by 2015, according to government data. McKinsey & Co. predicts online retailing in the world's second-largest economy will reach $395 billion next year, triple its 2011 level.