Example OF The Big IPO Issue: Alibaba Group Holding Limited Research Paper
Type of paper: Research Paper
Topic: Investment, Company, Issue, Public, Banking, Money, Finance, Stock Market
Alibaba IPO issue
On 5th September, 2014, the Chinese E-Commerce giant, Alibaba, filed legal papers with Security and Exchange Commission to issue Initial Public Offering in the US market. With the IPO issue amounting to $21 Billion, the stock market debut of this company was the largest in the world and with the expected market capitalization of over $155 Billion, the IPO issue made it one of the largest listed firms in the United States.
The company, which is a popular name in the global corporate environment, began its trade on New York Stock Exchange under the ticker symbol of ‘BABA’ on 19th September, 2014, offering the share at the issue price of $68/ share which because of heavy IPO subscription from the investors soared by 40% to $93.89/share on the very first session of the trade. Below is the graphical presentation of the stock price of the company since its IPO issue(refer to appendix for daily stock price movement data)
Referring to the daily stock price movement data (refer to appendix) we find that since its issue, the stock price has been making a conservative walk as since its first day trading price of $93.89/share on 19th September, 2014, the stock has reached the price levels of $103.02/share till date, thus providing investors with an appreciable return of 9.72%.
Motivations behind IPO issue
An Initial Public Offering(IPO) is the first public sale of stock of a company to the general public. At the time of IPO breaks into the markets, rarely any press coverage will detail the motivation behind the company issuing its IPO or going public. Below discussed are such possible reasons for a company raising money from general public:
Source of funds for large projects: Issuing an IPO allows a company to raise large sum of money from the public unlike through venture investors or through bank loans. The decision to raise money through IPO is only taken when the company needs big funds for a project or for expansion purpose.
Increase company awareness: Issuing an IPO creates a hype of the company in the corporate world followed by avalanche of press and media coverage. Thus, in addition to being a source of obtaining large amount of funds, an IPO issue.
Source of acquisition currency: Many a times, stocks are also used as source of settlement in a merger or acquisition activity. Thus a private company(buyer) will have to issue its securities in public so that the sellers(acquired company) can put up a value and find the real consideration being offered to him. On the other side, for the buyer also, negotiation in the acquisition price is also at its best as price of an IPO issue is easily valued.
Pricing of an IPOThe pricing of an IPO is a tough procedure and is decided by the investment bankers who are arranging the IPO issue for the company on the basis of following factors:
Industry Comparable: If the IPO candidate is in the industry where many companies are listed then the bankers will have to decide the price which may be linked to the valuation multiples being assigned to the competitors that are already listed.
Demand by the investors: If the company is relatively well known and the investors are anticipating the IPO, then anticipating high demand, bankers may quote high price so as to raise more funds from the IPO issue, vice-versa.
Alibaba issues additional shares to raise IPO total to $25b. (2014, September 18). Retrieved January 10, 2015, from China Daily: http://usa.chinadaily.com.cn/business/2014-09/22/content_18641329.htm
Gad, S. (n.d.). How An IPO Is Valued. Retrieved January 10, 2015, from Investopedia: http://www.investopedia.com/articles/financial-theory/11/how-an-ipo-is-valued.asp
Historical Prices: Alibaba Group Holdings. (n.d.). Retrieved January 10, 2015, from Yahoo Finance: http://finance.yahoo.com/q/hp?s=BABA&a=08&b=19&c=2014&d=00&e=10&f=2015&g=d&z=66&y=0
TELIS DEMOS, R. W. (2014, September 5). Alibaba Targets $155 Billion Value in IPO. Retrieved January 10, 2015, from Wall Street Journal: http://www.wsj.com/articles/alibaba-to-set-ipo-price-range-at-60-66-a-share-1409946492
Alibaba Historical Stock Prices