Assessment of Alibaba's IPO Finance and Performance

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Running Head: IPO FINANCE
IPO Finance
Student’s Name
Affiliate Institution
Submission Date

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IPO FINANCE
Question1
Assess Alibaba’s issue price of $68 per ADS. Price?
In September 2014, Alibaba Group of Holdings joined the New York Stock Exchange
and became one of the largest Initial Public Offer (IPOs) to ever exist in history. In this year, the
company grew in terms of Gross Merchandise where the Renminbi (RMB) increased from 1.08
trillion in 2013 to 1.68 trillion in the year 2014. This was a 50% growth. As a result of that
growth, Alibaba dominated 80% of the market share in Chinas e-commerce market and online
shopping.
Alibaba Company had more debt value which made the market value higher. In the year
2000 in the month of January, the company (Alibaba) got a boost of US20 million from
Softbank. The step of partnering with Softbank was made so that Alibaba could get a better
platform to expand and revive their company. The revival of the company played great a role in
delivering more value in the global trade.
In increase in debts, there is a reduction in the cost of capital. This made the value of
Alibaba shares to increase. When the value increased, the cost of the shared went beyond the
normal market cost.
The moment a firm realizes that it needs more funding and it does not need to secure
more loans so that the value of the shares can not reduce, it opts to go public and sell some of its
securities. This decision of selling some of the shares helps in maximizing the value of the firm.
When this decision is made, the first owners still want to have the ownership of the company
making the security value price high. This reason played a great role in the Alibaba share to cost
UD$68

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IPO FINANCE
Would you have invested in Alibaba at this price?
I would have invested in Alibaba firm. This is as a result of the trust that he had
developed between his customers and banks. The moment a scandal happened in 2012, where
customers lost large amounts of money when they were buying goods through his platform, he
compensated them. Trust is the best important aspect to consider when it comes to investing.
Furthermore, the company had grown from a very humble background to a very high
point outdoing all the other companies e.g. Google. In the past, the company had done so well
mostly when selling alibaba.com shares that were sold double the standard market price. This
gives limelight that Alibaba securities could still succeed.
Question 2
Based on a visual examination of the chart above, how does the performance of the Alibaba IPO
compare with average IPO performance documented by past empirical studies?
i. in terms of the short-term performance of the Alibaba IPO?
ii. and over the longer term?
(i) In terms of the short-term performance of the Alibaba IPO?
In the first year when Alibaba securities were available to the public, the price slightly increased
and later reduced to a lower value. This behavior has to be seen in every new security in the
market. At first, people will evaluate the company’s history and if the past image is bad, the
shares price will reduce below the normal price margin. Investors tend to conclude that the