On September 19, Chinese e-commerce giant Alibaba completed the initial public offering of its stock. The underwriters for the offering subsequently exercised their option to buy additional shares, making this the largest IPO in history at $25 billion. The stock’s price immediately jumped by a huge amount, finishing its first day of trading at $93.89, a 38% increase over its $68.00 IPO price. The stock has since lost some ground, closing at $87.17 on Tuesday.
What does this massive IPO mean for U.S. technology companies? I see four possible areas of impact:
- U.S. technology companies may delay their IPOs until they see how the Alibaba stock performs. This could be a short delay if the stock price holds up or does well. Right now U.S. technology companies Hubspot, Lendingclub.com, GoDaddy.com and Box, among others, are expected to conduct IPOs this fall.
- If the substantial demand for Alibaba stock holds up, fund managers may reduce their holdings in other technology stocks to pick up Alibaba shares. This could lead to a stock price reduction in some U.S. technology stocks as these fund managers sell them off as they rebalance their portfolios.
- If the Alibaba stock price doesn’t hold up, the U.S. technology IPO market could experience substantial delays and even reduced valuations. We saw some of this when the Facebook IPO didn’t go well back in 2012. Poor stock price performance from influential offerings like this can have a chilling effect on the IPO market. Alibaba has been strongly criticized in certain circles for its corporate governance and decision-making policies and its ownership. Large blocks of shares will also become freely tradable on a relatively short basis as various lock up agreements expire. Additionally, business conditions in China could change. Any of these factors could depress Alibaba’s stock price.
- The most profound impact from the Alibaba IPO has nothing to do with the stock price, but it could rock the U.S. technology economy. I believe that Alibaba now plans to directly challenge Amazon.com and other U.S. e-commerce companies, and these IPO proceeds will facilitate that competition. Alibaba founder Jack Ma has said that he wants to have an impact on the world’s business (after transforming e-commerce in China). This could have a serious negative impact on Amazon.com and other U.S. e-commerce companies.