Alibaba - an investment, then IPO?

[HenryTo]

Another potential hot IPO due to come out of China:
-------------------------------------------------------------------
Alibaba - an investment, then IPO?
Report: Alibaba in talks with Yahoo; Baidu stays in orbit

By Bambi Francisco, MarketWatch
Last Update: 12:20 PM ET Aug. 8, 2005


SAN FRANCISCO (MarketWatch) - If investors think Baidu is worth $5 billion, Alibaba - the Chinese version of eBay -- could be worth three times that, given that it's generating four times more cash than its Chinese Internet rival.

But that's only if Alibaba - a private startup that operates an online auction service, a business marketplace, and an electronic payment service in China - can pull off the kind of monster stock offering that Baidu executed last week.

Executives from Yahoo reportedly think it can.

Alibaba, which planned to go public in the U.S. in 2006, may rethink that schedule in the wake of Baidu's performance, according to one of the company's financial advisors.

"Alibaba currently plans to re-evaluate during 2006 the possibility of an IPO," said John Chi, of Hong-Kong-based merchant bank Seraphin Capital Limited, in an e-mail to MarketWatch last week.

Chi was responding to a question asking whether Baidu's IPO might accelerate Alibaba's own plans for a stock offering.

Now, just one trading day after Chinese search engine Baidu (BIDU: news, chart, profile) soared more than four-fold on its first day of trading, there's speculation that Alibaba is in talks to sell a third of its company to Yahoo (YHOO: news, chart, profile) .

According to Forbes.com, Yahoo is in "advanced" talks to buy 35% of Alibaba for almost $1 billion. Alibaba declined to comment on the report. Yahoo did not respond to an email seeking comment.

At a market valuation of $5 billion, Baidu - the Google (GOOG: news, chart, profile) of China -- is trading at 173 times its 2005 sales estimate of $30 million.

Using that metric, Alibaba is worth much more.

Alibaba had sales of $46 million in 2004. If you assume the firm can roughly double that to $100 million in 2005, and that investors would pay as much for Alibaba as for Baidu, the China's eBay's (EBAY: news, chart, profile) might be worth $17 billion.

That's more than plausible, given that Alibaba's marketplace business is expected to generate $25 million in cash flow this year, according to Chi, compared to an estimated $12 million for Baidu.

Clearly, the price to buy into China is rising. In April, MarketWatch suggested that eBay consider buying Alibaba since Alibaba was a threat to eBay in China, and prices to buy into China would only rise.

See prior Net Sense: Eyeing Alibaba

In Monday trading, that thesis seemed to be playing out.

Shares of Baidu rose $17 to $146.

Earlier it touched $153 apiece. With roughly 34 million shares, that means the market is assigning Baidu a market value of $5.2 billion. Baidu is estimated to earn 42 cents a share this year on sales of about $30 million, giving Baidu a price-to-earnings multiple of 364 times this year's earnings, and 173 times sales.

Alibaba is among the fast-growing Chinese Internet startups. Alibaba owns two of the largest B2B marketplaces in the world; has a joint-venture partnership with Softbank in a popular Chinese online auction business, called Taobao; and owns a Chinese online payment system, called AliPay.

Currently, Taobao had a gross merchandise value of $200 million in the second quarter, up from $120 million in the first. The site is attracting 80 million page views a day.

AliPay supported $17 million in payment volume in June, vs. $12 million in March.

Sound off: Did the investment bankers price Baidu fairly or too low? Should Baidu have considered a Dutch Auction? Ping me: Bambi.Francisco@dowjones.com or at Bambi.blogs.com.

You can receive this daily column via e-mail: You can also subscribe to Net Sense, Bambi's weekly commentary.


Bambi Francisco is Internet editor for MarketWatch in San Francisco.