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Alibaba (NYSE:BABA)’s Initial Public Offering Hits Record High of $25 Billion

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The initial public offering of Alibaba Group Holding Ltd (NYSE:BABA) became the largest ever on the stock exchange. Valued at $25 billion, the company’s bankers used an option to increase the deal size by 15 percent.

The company’s underwriters purchased an additional 48 million depositary shares from Alibaba at the price of the initial public offering price of $68 per share. This meant that the Chinese online retailer’s intiial public offering beat out the previous IPO record of $22.1 billion, held by the Agricultural Bank of China’s intial public offering in 2010.

Today at the market’s open, Alibaba’s shares dropped after increase by 38 percent during their trading debut on September 19th. That was the largest jump on the first day for an IPO of at least $10 billion. This makes Alibaba one of the most valuable firms in the United States.

Accordign to Li Muzhi, an analyst at Arete Research LLP, the expectations that analysts and investors have for Alibaba are sky high. The market is seemingly using the company as a vessel for the consumer economy and the macroeconomy.

Fees for Underwriters

The underwriters for Alibaba earned about $300 million in fees, which was about 1.2 percent of the total proceeds generated by the initial public offering. JPMorgan Chase & Co, Credit Suisse Group AG, Goldman Sachs Group Inc, Morgan Stanley, and Deutsche Bank AG each took home 15.7 percent of the fees. Citigroup Inc had 7.9 percent of the fees. The other 28 underwriters took home 1 percent or less of the fees each.

About half of Alibaba’s initial public offering was divided among 25 institutional investors. Such a large concentration attracted more fund managers to purchase the shares on the first day of trading, since they wanted to be a part of the company’s dominance in a growing e-commerce industry in China, a country of more than 1.36 billion people.

According to McKinsey & Co, the online commerce in China, the country with the second biggest economy in the world, will hit $395 billion by 2015, which is three times its level in 2011. Alibaba’s online retail platforms helped create package shipments totaling 6.1 billion in the past fiscal year. This number accounted for over 54 percent of the country’s total.

Operating Profit

Alibaba’s operating profit grew to $1.1 billion in the last quarter, which is 42 percent greater than the profits of Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY) combined. Revenues increased by 46 percent in Chinese RMB, to the what totaled to $2.54 billion.

Alibaba attracted throngs of money managers to its meetings around the world when it pitched itself around the world to prospective shareholders.

Jack Ma, the founder and chief executive officer of Alibaba, grew his net worth to over $26.5 billion from $60,000 when he first started the website. Mr. Ma is now the richest man in China,

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