Alibaba may not be a treasure trove

Bumpy ride likely for investors as the firm faces waning market share and competition

[SINGAPORE] The sheer size of the Chinese e-commerce market may make Alibaba's initial public offering (IPO) highly coveted, but investors could be in for a bumpy stretch as the Chinese behemoth battles with waning market share and competition from new mobile platforms.

Alibaba Group filed the paperwork on Tuesday in the United States for what could trump Facebook to be the biggest technology stock listing estimated at US$15 billion to US$20 billion by analysts.

The filing marks the start of a journey that will involve months of meetings, revision of the offer document and roadshows before the public listing.

Its market value is estimated to be US$168 billion, making it the most valuable Internet company after Google Inc, according to Bloomberg data. Eight other Chinese technology companies have filed for US IPOs worth a total of US$2.3 billion in the first quarter.

Alibaba has yet to decide whether to list its shares on the New York Stock Exchange or Nasdaq, after turning its back on Hong Kong where the authorities disallow the listing of dual shares. Its smaller rival,, has filed its prospectus earlier and is slated to debut in the coming weeks.

Compared to Alibaba, JD is much smaller in scale but its tie-up with social media giant Tencent Holdings since March may shake up China's e-commerce market that is currently dominated by Alibaba's Taobao and Tmall sites.

The next battlefield for Alibaba, whose net profit doubled to 8.53 billion yuan (S$1.7 billion) in 2013, will be mobile commerce, analysts say.

JD's tie-up with Tencent combines the latter's ability to attract smartphone users through its popular WeChat mobile messaging application with JD's expertise in retail logistics.

"Mobile shopping is gaining traction in China and the Tencent and collaboration could propel WeChat into a mobile eCommerce platform faster than anticipated, with the help of the Tencent digital payment service TenPay," said Kelland Willis, an analyst at Forrester Research.

"This would not only create another large competitor, but a competitor in the social commerce space where the Alibaba Group doesn't have a strong presence," she added.

While iResearch touts Alibaba's Mobile Taobao App as the most popular mobile commerce app in China in terms of monthly active users (MAUs) and gross merchandise value, Alibaba is not sitting still. It is planning to develop a broader spectrum of mobile offerings such as location-based services, O2O services and digital content.

"We will also continue to look for ways to increase our mobile user base and engagement through strategic alliances, investments and acquisitions," the group said in the filing.

Alibaba has already hit the ground running. In February, it made a US$1.13 billion takeover offer for AutoNavi Holdings, after it bought a 28 per cent stake in the mobile map developer last year. It also bought an 18 per cent stake in Sina's Weibo microblog last year in a bid to draw mobile users.

"Alibaba has been trying to build a complete ecosystem that can compete with these competitors," Beijing-based analyst at Forrester, Vanessa Zeng, observed. "The challenge will lie in effectively integrating the properties it has newly acquired and invested in in order to win the battle with the likes of Tencent and Baidu."

Besides greater competition, Alibaba is also bracing itself for more business risks ahead. Its Yu'E Bao fund, a deposit-like fund that offers an interest rate in excess of 6 per cent, is under greater scrutiny as the Chinese government seeks to clamp down on shadow banking.

Beijing is also tightening its regulatory screws on third-party payment services, which could affect Alibaba's e-payment affiliate Alipay.

Still, there is much room for growth given that China's online shopping represents only 7.9 per cent of the total China consumption last year. iResearch projects the growth to be at a compounded 27.2 per cent from 2013 to 2016.

There is no mention in the filing, however, of how Alibaba will expand in Asia, where it just started a regional Taobao site for South-east Asia this year.

Its governance structure involves a group of 28 partners - including chairman Ma Yun - who will nominate a majority of the board and shareholders will vote on the nominees.

In his email to employees just before the filing, Mr Ma coined the public listing as a "gas station" that will help move the group forward.

"We'll definitely face unprecedented challenges and pressures because of size, expectations, border awareness, cultural conflicts, regional political and economic situations. Only by continuing to persevere and sticking to our beliefs will we be able to survive for the next 87 years of hardship and the pressures and temptations."

A cultural conflict of sorts apparently cropped up earlier than expected, with some Chinese expressing disdain on Weibo, after learning from the filing that Alibaba's major shareholders are Japanese and US companies. Japan's telecom company, SoftBank Corp, and America's Yahoo Inc have invested in Alibaba since 2000 and 2005, respectively, and their holdings have long been disclosed. SoftBank owns a 34.4 per cent stake while Yahoo holds 22.6 per cent.

Post-IPO, SoftBank's stake will remain above 30 per cent and it will retain a board seat on Alibaba, while Yahoo, which will sell a 9 per cent stake, will have executive director Jacqueline Reses stepping down before the IPO.

"No company can succeed at everything," Mr Ma said in his email. "While sticking to our commitment, we must change ourselves for customers, for the world, and for the future."

Investors will just have to brace themselves for an eventful ride.

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