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Alibaba’s Average Valuation Reaches $153 Billion on Earnings

The Alibaba Group Holding Ltd. logo is displayed on an iPad in an arranged photograph in Hong Kong. Photographer: Brent Lewin/Bloomberg
The Alibaba Group Holding Ltd. logo is displayed on an iPad in an arranged photograph in Hong Kong. Photographer: Brent Lewin/Bloomberg

Feb. 5 (Bloomberg) -- Alibaba Group Holding Ltd.’s estimated valuation rose to an average of $153 billion after the Chinese e-commerce company, said to be headed for an initial public offering this year, reported surging sales.

That represents a 28 percent increase in value from the $120 billion average of six estimates in October. The company posted profit of $792 million for the three months ended September, a 12 percent increase from the June quarter, according to a presentation last week from shareholder Yahoo! Inc. Alibaba’s revenue surged 51 percent.

Analysts expect Alibaba to hold the biggest IPO since Facebook Inc., now valued at $159.4 billion, as it taps into the nation’s 618 million Internet users and pushes into mobile games and instant messaging. Goldman Sachs Group Inc. valued Alibaba at $150 billion in a Jan. 29 report, while Macquarie Group Ltd. said the Hangzhou-based company may be worth as much as $200 billion.

“Alibaba has reached a revenue size/scale that makes it highly attractive to large-cap tech investors; Google, Facebook and Baidu were all smaller at IPO,” Youssef Squali, an analyst at Cantor Fitzgerald, wrote in a Jan. 29 report valuing Alibaba at $152.8 billion. “Alibaba is still sustaining break-neck growth rates.”

Tencent, Baidu

Alibaba is competing with Tencent Holdings Ltd. and Baidu Inc. by making deals at home and in the U.S. to extend its e-commerce reach into applications for smartphones and tablet computers. Alibaba’s profit for the quarter ended September compares with $422 million for Facebook and $297 million at Yahoo in the same period.

Sunnyvale, California-based Yahoo owns a 24 percent stake in Alibaba, which operates platforms including Taobao Marketplace and Tmall.com that connect retail brands with consumers. SoftBank Corp., the Japanese wireless carrier controlled by billionaire Masayoshi Son, owned about 37 percent of Alibaba as of July.

The Chinese company, founded by billionaire Jack Ma, makes most of its sales from commissions and advertising.

The 10 estimates used for the latest valuation range from $125 billion by Piper Jaffray Cos. to as much as $200 billion by Macquarie. They were released starting Jan. 28, when Yahoo announced its earnings.

Valuation Cuts

Two reports cut Alibaba’s valuation. Evercore Group LLC reduced it by 5 percent to $150 billion, saying in a Jan. 28 report that Alibaba’s revenue and profit fell short of its estimates. FBN Securities Inc. said Alibaba’s revenue and operating margins were below its estimates, and it cut the valuation to $145 billion from $160 billion, according to a Jan. 28 report.

Alibaba’s potential IPO may only contain its e-commerce business platforms, which include Alibaba.com, Taobao and Tmall.com, according to Ben Schachter, an analyst at Macquarie whose Jan. 28 note cited China Internet analyst Jiong Shao.

Other assets, such as the group’s microfinancing business and Alibaba Cloud, may not be part of the offering, according to Macquarie. Alibaba Group is the umbrella for all the business units.

“People are optimistic about Alibaba’s mobile strategies with the launch of mobile games and more offerings,” said Ricky Lai, an analyst at Guotai Junan International Holdings Ltd. in Hong Kong. “With the earnings outlook for the fourth quarter and beyond being positive, its IPO could be huge.”

To contact the reporters on this story: Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net; Sarah Gill in Sydney at sgill23@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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