Why American Investors Would Want A Piece Of Alibaba's IPO

May 9, 2014
Originally published on May 9, 2014 2:39 pm

This week, the Chinese e-commerce company Alibaba announced it would go public in the United States this summer. That announcement has caused quite a stir, including among many American investors.

Zoe Chace from NPR’s Planet Money team joins Here & Now’s Jeremy Hobson to discuss what an Alibaba IPO means for American investors, and why they should consider an investment.


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This is HERE AND NOW from NPR and WBUR Boston. I'm Jeremy Hobson.

The Chinese e-commerce company Alibaba announced this week that it will go public this summer in the U.S. But why here? Zoe Chace is with NPR's Planet Money Team. She's with us from New York. Hi, Zoe.


HOBSON: So why is Alibaba coming here to the U.S. to raise money? Why not just do that in China?

CHACE: The U.S. is just, it's, you know, it's an amazing global financial center. Alibaba wants to raise a ton of money, like, this is where the big investment banks are. This is where the huge pension funds are. This could be the biggest public offering ever.


CHACE: Alibaba wants deep-pocketed investors. So there's all that stuff. But the real key to it is, Alibaba actually went to Hong Kong first to see if they could list in Hong Kong. But they wanted to do this thing that you can't do in Hong Kong, which is issue these shares that don't give you much control over who the owners are of the company. And we're kind of used to that over here. In this country you're allowed to do that.

Like, Facebook has that. Google has that. Big media companies have that, like The Washington Post and The New York Times. So the one thing I would say though, a lot of times they're familiar with the brand of the company. Like, those investors are on Facebook, they use Google, they read The New York Times and The Washington Post. With Alibaba, they don't know the company as well. So there might be a little bit more anxiety about these essentially non-voting shares.

HOBSON: Well, tell us about that, some of the anxiety, about owning shares in a Chinese company in general. Are Americans going to be nervous about doing that?

CHACE: I think so, just a little bit. China is a different place, like, they have different rules. And one of the rules is that you can't have foreign investors in an Internet company.


CHACE: And that's awkward because that's what Alibaba wants.


CHACE: So they created this holding company for foreign investors that's held outside of China. And that's basically, it gives U.S. shareholders access to lots of Alibaba's profits, but they're not right within China. The thing is, if Chinese regulators decide to crack down on this, and they haven't, then a lot of foreign shareholders could get kind of just screwed. However, there are lots of companies already that are Chinese companies on the U.S. stock market and it hasn't been a problem.

And so, probably, investors are going to be like I'd rather get in on this, even though there's this weird structure.

HOBSON: Well, explain that because, given all of those risks, why would you be excited about a company like Alibaba? Why not just invest in an American company that you're not worried the government is going to change the rules, and all of a sudden your shares are worth nothing?

CHACE: Yeah. I can't speak from an investor perspective. But I can say that Amazon, they have something like 25 percent of U.S. online commerce. Like, 80 percent of China's online shopping market is Alibaba. And actually, like, Alibaba is almost like a template for sort of what's happened to the Chinese economy over the past 10 years. It used to be business-to-business.

Now it's just this huge online shopping store. And it just kind of shows how much China has changed, and this is one company that knows how to cater to an economy that changes really quickly.

HOBSON: Well, and we should say that unlike eBay and Amazon, it's not competing in the same way with brick-and-mortar stores in China. Tell us more about that.

CHACE: Think about, say, something like a Sears Roebuck. Like, Sears started...


CHACE: ...in this country in Chicago, you know, more than a hundred years ago. And we're still kind of trying to figure out what to do with the sort of slow bleed out of Sears.


CHACE: You know, investors are trying to figure out: Is there anything left in Sears? Like, I don't know. In China, they don't have department stores that have been around for 150 years, and they can kind of leap frog over this brick-and-mortar retail, you know, kind of problem that you have if you're an investor in retail over here.

HOBSON: Lots to think about as people consider getting in on this Alibaba IPO in the United States.

Zoe Chace from NPR's Planet Money Team, thanks so much.

CHACE: Thank you.

HOBSON: And this is HERE AND NOW. Transcript provided by NPR, Copyright NPR.