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Alibaba's Initial Public Offering Is One Of The Largest Ever


This is the day for shares of Alibaba to begin trading on the New York Stock Exchange. China's e-commerce giant is selling shares in what is likely to become the largest initial public offering of all time. This IPO on Wall Street also marks an important moment in China's emergence as a financial force in the world economy - Chinese company, American stock exchange. From our Planet Money team, NPR's Steve Henn is covering this story. Hi, Steve.

STEVE HENN, BYLINE: Good morning.

INSKEEP: So how's this all working?

HENN: Well, so the stock market is open in New York, but Alibaba's stock hasn't begun trading yet. And the process of actually starting trading takes some time. Alibaba sold more than 300 million shares of its stock last night, mostly to large institutional investors. So this morning, those investors and many other longer-term Alibaba shareholders get their first chance to sell their stock on a public exchange. And orders for the stock are pouring in - apparently, initially more than 100,000. The trick is to find an opening price where demand for the stock is balanced with the supply. And that's actually a job done by real people on the floor of the exchange, market makers. So they're going through different price points for the stock, testing those prices out to see if those prices will clear. And right now, early indications are that when trading starts, the stock is going to rise, possibly as high as $90 a share, which would make Alibaba worth more than $222 billion.


HENN: That's about 10 percent bigger than Facebook.

INSKEEP: Wow, and bigger than people were expecting just earlier in the morning. I have to say, we've been watching television images of people talking on the floor of the New York Stock Exchange. It's amazing, when there's so much electronic trading, to think that some of this business still is done face-to-face.

HENN: No, it's incredible, right? It's the biggest e-commerce IPO ever, and we're talking about people talking to people, trying to figure out a price.

INSKEEP: Well, let's you and I, as we talk, try to figure out what Alibaba is, for those who are not familiar with it. E-commerce, what does that mean, in Alibaba's case?

HENN: Well, it's similar to eBay or Amazon. But unlike Amazon, and really more like eBay, Alibaba's primary business is to connect buyers and sellers - really, mostly Chinese companies with Chinese consumers and other companies around the world that want to sell Chinese products. Right now, it makes most of its money on its consumer-focused website, something like 80 percent of all e-commerce in China goes through the site.

INSKEEP: We're talking about just basic, consumer goods of different kinds that I could buy if I'm in China?

HENN: Right. The brick-and-mortar shops in China aren't as well-developed, certainly, as the United States. So e-commerce had a bigger opportunity there. You know, like, more than 270 million Chinese shop on Alibaba. And the volume that goes through the platform is actually larger than eBay and Amazon combined. And revenue at the company is growing incredibly quickly. It was up more than 45 percent year over year.

INSKEEP: It sounds like just another Amazon, though. How is it different than Amazon?

HENN: Well, there are couple of big differences. Amazon has never had very big profit margins. It's marginal profit last quarter was zero. And the reason is that it's in a very price-competitive environment. It has to compete against Walmart. And so it takes a tiny, tiny sliver of every item it sells. And it maintains warehouses and inventory all over the country. Alibaba has a different business model. It really connects other companies to consumers, and it makes its money selling advertising on the site itself. So it's profit margins are enormous, above 40 percent. And that's larger than Google or Apple during their best quarters.

INSKEEP: Just so I understand - so you're saying Amazon is kind of a store. I buy stuff from Amazon. On Alibaba, I'm getting connected with a company that's going to sell me things.

HENN: That's right. Alibaba is really more of a network.

INSKEEP: OK. And so why are they going public, very briefly, in the United States?

HENN: Well, they're going public in the United States because they went searching for a country that would let Jack Ma and his closest associates retain control of the company, even if they no longer owned a majority of the stock. Hong Kong's stock exchange wouldn't let them do that. It's legal here in the U.S. Google has a similar structure, and that's why they're here.

INSKEEP: OK, so dramatic moment - we're still waiting to find out what the price is going to be for Alibaba's stock. But you said something more than $200 billion might be the bottom line here?

HENN: Yep, I think that looks pretty certain at this point.

INSKEEP: Steve, thanks very much.

HENN: My pleasure.

INSKEEP: That's NPR's Steve Henn. Transcript provided by NPR, Copyright NPR.

Steve Henn is NPR's technology correspondent based in Menlo Park, California, who is currently on assignment with Planet Money. An award winning journalist, he now covers the intersection of technology and modern life - exploring how digital innovations are changing the way we interact with people we love, the institutions we depend on and the world around us. In 2012 he came frighteningly close to crashing one of the first Tesla sedans ever made. He has taken a ride in a self-driving car, and flown a drone around Stanford's campus with a legal expert on privacy and robotics.