What is Alibaba?

By Kevin Duan

On September 19, 2014 the e-commerce giant Alibaba began trading on the NYSE, marking the largest IPO in history. Opening at $68 and closing with a share price 38% higher, Alibaba currently sits at $114.56. The influential company currently has around 86% market share; in comparison, Apple has just 18% market share. The company is able to thrive as a result of satisfying the world’s fastest growing economy with a new, quickly developing industry: e-commerce.

However, the 2nd quarter earnings report from Alibaba shows both positives and negatives. Alibaba’s revenue managed to surge 54% from the previous quarter, however margins are sliding. The data shows that as large as Alibaba is and how much market cap it has, it still is acting like a growth company. Yet if Alibaba wishes to succeed on the long run, they must not fall into the trap of oversizing too big too quickly, as improbable as it seems due to its enormous size. Later on, margins need to improve at least annually, and dividends need to be paid to investors.With all this talk of Alibaba on Wall Street and the NYSE, few people genuinely know what Alibaba is and just how important it can be.

Alibaba was started by Jack Ma, a former English teacher, in his small apartment in Hangzhou, China. In December, 1998, Jack Ma and seventeen other founds released their first online marketplace: Alibaba Online. Alibaba experience two years of growing revenue until finally, in December of 2001, Alibaba managed to achieve profitability. Alibaba initially began as a marketplace where business traded goods with other business. Alibaba does not have any products on its own marketplaces, rather, they generate revenue from fees and advertisements. Alibaba has managed to grow from a start up struggling to gain profitability and solvency, to the largest e-commerce company in China.

Jack Ma has managed to achieve his initial dream of competing with America’s companies, going as far as to surpass many of its giants. If we compare Alibaba’s financials to Amazon, the currently leader of e-commerce in America, we see that from April to June of 2014, as Alibaba incurred roughly 2 billion USD in profit; Amazon didn’t reach profitability. Alibaba’s market cap is more than that of both Facebook and eBay. As of September 23, Alibaba currently ranks fourth in market cap on the NYSE. Sitting behind Apple, Google, and Microsoft respectively. However with Alibaba’s rapid growth, many suspect that it will surpass Google and Microsoft within next few years.

Alibaba has the blessing of an extremely large Chinese market at its fingertips, and as the Chinese economy continues to grow, Alibaba is able to follow suit. Alibaba dominates the Chinese e-commerce industry due to its revolutionary technology and multiple websites that target different audiences and provide nearly everything. Alibaba began as the crazy idea that an English teacher who failed to qualify for university two years in a row came up with in 199, and now has achieved the largest tech IPO in history. Alibaba perfectly personifies the rags-to-riches story that everyone loves.

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