Chinese e-commerce giant Alibaba has finally filed for a $1 billion IPO – though the final figure raised could make it the world’s largest-ever public offering. The much awaited filing brought with it little information, as not even a ticker symbol or the exchange for the listing was revealed. One thing the SEC document did divulge was roughly how much long-time stakeholder Yahoo would make from the deal.
In the Chinese behemoth’s debut, Yahoo will sell 208 million shares, or 40 percent of its holding in the company – reaping about $10 billion in the process. Reports on how much Alibaba’s IPO will raise overall vary, but data compiled by Bloomberg suggests it could be as much as $20 billion. Yahoo has had to wait patiently for nine years to see its $1 billion investment pay off. The Sunnyvale, CA-based company previously held a 40 percent stake in Alibaba, but sold nearly half in 2012. It now owns 23 percent, and is set to enjoy a considerable windfall from selling less than half again.
Yahoo CEO Marissa Mayer has until this point struggled to energize her company’s unimpressive sales growth. And Mayer’s reign as CEO will be defined by how she spends the cash raised from the Alibaba IPO. With funds from the offering, Mayer can continue Yahoo’s acquisition spree and fortify her company, bulking Yahoo up to compete with the likes of Facebook and Google. Yahoo has already made significant acquisitions under Mayer’s reign, the most notable of which was the $1.1 billion Tumblr purchase last year. But now the company finds itself linked with bids for even bigger targets such as Pinterest, Snapchat and even AOL.
In an earnings call in April, Mayer said she would be careful with Yahoo’s cash reserves. “We intend to be good stewards of our capital and we have been to date,” Mayer said. “When we look at the investments we need to make in the business, you’ll see the same type of mix we’ve been making to date: some strategic acquisitions, some tuck-in acquisitions.” But if Yahoo finds itself with as much as $15 billion in cash, investors could demand a more adventurous and ambitious approach.
Though Yahoo will walk away from the listing with an enormous amount of cash, the shares sale will be a bittersweet moment for the company, as it will have to replace the revenue it loses by selling 40 percent of its stake in Alibaba. Yahoo’s decision to keep 60 percent of its stake in Alibaba comes as no surprise when looking over the Chinese company’s numbers.
At the end of last year, Alibaba had 231 million active users across its entire suite of offerings, including Alibaba.com, where small businesses sell goods internationally, and Tmall.com, which allows Western companies to sell their products to the Chinese market. The company claims that each active user makes 49 purchases every year. Chairman Jack Ma has also ensured the company fully exploited mobile, and a report from marketing group iResearch suggests that 76 percent of all mobile retail in China was carried out on Alibaba sites. Mobile revenue as a percentage of total merchandise sales also grew by more than 12 percent in the last quarter of 2013.
Yahoo’s latest earnings report revealed a 2 percent increase in advertising revenue, its core business. While the increase was welcomed, it pales into insignificance compared to Facebook’s 76 percent jump in ad revenue in the last quarter, and the industry average of 18 percent.
Until now Mayer has steadied the ship at Yahoo without producing anything spectacular in terms of a turnaround. The Alibaba IPO will certainly give her the means to accomplish that goal, but will also pile on the pressure, as investors hungrily await results.