China

Is Alibaba’s IPO price too high?

The Alibaba Group, one of China’s best known Internet companies, is expected to list a section of the company in November on the Hong Kong stock exchange. The part being listed is involved in B2B activities - linking buyers to sellers online - while their popular auction website, Taobao, will likely be listed later. The result of the listing has been the kind of hype not seen since 1999. Is the hype justified (and price)?

An experienced source…
In all the hype about the upcoming IPO of Alibaba, there are few more credibly positioned to speak about the company than Paul Woodward, founder of BSG Asia. BSG Asia is the only consulting business to focus exclusively on Asian B2B media and Paul has 20 years of experience in the region.

…with a view counter to the market…
To Woodward, Alibaba’s valuation is “extremely ambitious”.

…backed up by numbers…
Alibaba’s current valuation is 4 to 5 times that of the entire B2B market in China. At the current valuation running between HK$10 and HK$12 per share, the value of Alibaba is put somewhere between US$6 billion to US$7.5 billion. Compare this to Paul’s estimate of the China’s entire B2B market at US$1.4 billion in 2006 and $2 billion in 2007. (Also, the PE ratio of Alibaba would be a very high 90.)

…that imply “extremely ambitious” growth numbers…
“If Alibaba can maintain 50 to 60 times profits growth per year and keep it up, the current valuation could be reasonable. I do not think this growth is impossible, but it is pretty challenging,” Woodward said.

…but market craze and a desire to reposition the company…
“Alibaba wants us to see them as a general China Internet play, such as Baidu or Sohu, but they are only listing a B2B entity. If they can shift the perception of their company the value may hold, but this does present a downside risk,” Woodward said.

…may hold the stock’s value.
“I think the market will buy the stock.”

Woodward said that from a B2B perspective, the online hype has distracted attention from a key source of revenue in B2B media: Those hundreds of conferences organized across the region. (Alibaba does not organize any trade fairs.)

Online may be sexy, but industry events make more money…
Apart from Alibaba and Global Sources, where online revenue is extremely important, trade fair companies that focus on organizing exhibitions are doing very well financially. After just a few years of organizing events, Global sources has gone from zero to more than US$50 million per year in exhibition revenue. For Woodward’s BSG itself, 60 to 70 percent of billings focus on industry events.

…data is difficult to compile…
The market for trade fairs is, however, extremely fragmented, with many tiny companies that are hard to research.

…but the numbers are staggering for China…
Trade fair revenue is estimated at US$2.5 billion across Asia with 30 percent of it in China (US$759 million) in 2006

…with revenues heavily concentrated in events…
Of the B2B industry’s US$1.4 billion in China revenue in 2006, B2B trade fairs account for US$759 million, with US$350 million online and US$300 million magazines.

…growing fast…
China B2B trade fair revenue increased 33% in 2006 from a year earlier. Hong Kong grew 50%, due to opening of the airport exhibition center.

…concentrated in major cities…
Excluding Hong Kong, China B2B trade fair revenue comes 29% from Beijing and 26% from Guangzhou.

…but Macau presents a challenge.
Macau’s opening will create new opportunities, but will also draw away from other venues.

To see more data in Woodward’s slides click here.

Technorati Tags: AdTech Beijing, Alibaba, B2B, Beijing, BSGAsia, China, Global Sources, Paul Woodward

© 2008 Thomas Crampton | Developed by Oursky Limited