IG’s $198 billion Alibaba grey market points to record tech IPO
IG, the leading CFD and financial spread betting provider, says its grey market for the much anticipated Alibaba IPO in the United States has levelled off at $198 billion over the past three months after some early volatility, suggesting that the Chinese tech giant’s flotation is set to be one of the largest in history.
The IG grey market valuation points to the Alibaba flotation eclipsing the highly successful IPOs of US tech giants such as Amazon, Facebook, Twitter and eBay, IG says.
A grey market allows investors to take a position on the share price of a company that’s about to be listed, giving a good indication of what the price might be at the end of the first day of official trading. IG grey markets in 2014 have been on average 16 % away from the exact launch figure.
The IG grey market for Alibaba (www.ig.com/uk/ig-shares/alibaba-ipo-100-mn) began in March after the e-commerce company announced that it had filed documents for an IPO on the New York Stock Exchange, marking the beginning of the final step on the road to becoming a publicly-listed company. The flotation was originally planned for early August but was postponed until after the September 1 Labor Day holiday in the US. Alibaba is still to confirm its IPO date.
Initially, the price range of the IG grey market was between $175 billion and $260 billion, but since mid-May, it has only tested $205 billion once and briefly dropped below $195 billion, according to an IG Q & A briefing on the Alibaba IPO and IG’s grey market.
The briefing report says the initial wide range of trading underlined the breadth of opinion on the possible size of the IPO, reflecting the degree of uncertainty surrounding Alibaba as a business.” But after levelling out around the $198 billion mark (over the last three months), however, it appears that traders have found a comfort level,” the report says.
In July, Alibaba updated its valuation to $130 billion, from an initial valuation of around $117 billion. A recent survey of analysts at Bloomberg valued the company at $154 billion, though that was based on the premise that the company may price its IPO beneath its assessed value to entice investors. The analysts believed that the company’s true value was $198 billion, in line with IG’s grey market.
“We’ve seen continuing demand for the Alibaba grey market, with buyers tending to step back in when the price dips. Our grey market suggests that this is one IPO that is probably worth the hype, with traders seemingly not wanting to miss out,” said IG analyst Chris Beauchamp.
“Our grey market on the Alibaba IPO suggests that the Chinese tech giant looks set to be one of the biggest IPOs and the largest tech IPO in history, beating such US giants as Amazon, Facebook, Twitter and eBay.”
At its current value of $198 billion, the IG grey market for Alibaba is substantially greater than Facebook’s highly impressive $105 billion IPO and dwarfs Twitter’s $24.48 billion listing.
While a number of recent tech IPOs have been disappointing, the IG paper says the hype around the Alibaba IPO appears to be justified.
“Alibaba’s IPO presents an opportunity for traders to invest in a company that is proven to be profitable, in a market that is already huge and set to get bigger. That marks it apart from the recent social media IPOs, which were based on each company’s potential to earn profit from advertising rather than any actually made,” the IG briefing report says.
“In the last fiscal year, Alibaba nearly tripled its profits to $3.75 billion, and increased its revenue 50% to $8.45 billion. And since China’s internet penetration is not as high as in other countries, there’s still plenty of room for it to grow.
“Plus, the numbers surrounding the company are staggering. In 2013, it saw sales of almost $250 billion across all of its sites, more than Amazon and eBay put together. That was a 45% increase on the figure for 2012, and around 3% of China’s entire GDP for the year. Alibaba has been likened to China’s eBay, but comparisons with Amazon may be more appropriate, given the US retail giant had 2013 revenue equivalent to around 4% of US GDP in 2013.”
Alibaba IPO grey market page: www.ig.com/uk/alibaba-ipo-grey-market