Read Part 2: M&As To Make Or Break Companies
Read Part 1: Collaborations Rule The Day
This past year has been a solid one for initial public offerings and the total amount raised topped 2013 levels by 49%. Of the $204.8 billion raised in 2014, U.S. markets accounted for 39% with the Alibaba (BABA – Analyst Report) IPO being the biggest. Finance, technology and pharma/biotech were the major areas attracting investment.
Alibaba
Alibaba was the biggest IPO in U.S. history, raising $21.8 billion and turning its major shareholders into multi-billionaires overnight. Share prices continued to rise thereafter and stabilized only after the company reported earnings.
Alibaba is the largest online marketplace in China with both BTC (T-mall) and CTC (Taobao) platforms. It also offers a range of payment services that the majority of Chinese customers are accustomed to using. China has the world's largest population and also one of the fastest-growing internet populations in the world. The online retail sector in China is booming and offers good growth prospects for investors. Since Alibaba generates huge volumes and is also not a direct retailer, it has solid margins. It generated revenue of $2.74 billion in the last-reported quarter (a 54% jump year over year), but increased investment in mobile, marketing and other new ventures led to a bottom-line miss.
The company has since refinanced $8 billion it owed banks with 10- and 20-year notes at favorable interest rates. This is the highest amount raised in recent history, signifying that confidence in this Chinese company's prospects remains high. Share prices in fact appreciated further following the announcement.
JD.com
Unlike Alibaba, JD (JD – Snapshot Report) is primarily a Chinese online retailer with a business model similar to Amazon's (AMZN – Analyst Report). And like Amazon, it generates very low margins, accumulating a loss in its last-reported fiscal year. But the $1.8 billion it raised through the IPO and another $1.3 billion it raised through a private placement of 138 million shares to Tencent (TCEHY) should enable it to invest in revenue growth, which has been impressive (68% in 2013 following the 96% growth in 2012). Volumes are the only way online retailers can make profit because investment in technology, merchandise/content and fulfillment results in very high costs.
