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By Jason Simpkins
One day after oil giant PetroChina Ltd. (PTR) made its debut raising $8.94 billion, Alibaba.com Ltd. yesterday (Tuesday) became the latest beneficiary of the frenzy over Chinese stocks. The business-to-business arm of China's biggest Internet company, Alibaba saw its shares nearly triple after its initial public offering (IPO) listed its shares in Hong Kong. Shares bolted 290% from HK$13.50 to HK$39.50, giving the Hangzhou-based company a market value of $25.7 billion. When it was all said and done, the company had raised $1.5 billion, the most ever for a China-based Internet company.
The stock now trades at 155 times next year's estimated earnings. By comparison, Google Inc. (GOOG), whose stock has increased eightfold since its 2004 IPO, trades at 35 times its estimated earnings.
"It's a high valuation, but if Alibaba can use its leadership position in the e-commerce market to get more Chinese businesses to pay for its services, it will justify it," Rafe Xu, an analyst at Sinopac Securities Asia Ltd., told Bloomberg News.
Alibaba allows small businesses to buy and sell products anywhere in the world. In the quarter ended June 30, Alibaba accounted for 43% of all transactions in China's business-to-business e-commerce market. That is more than triple its nearest rival, according to estimates by Analysys International.
China Network Information Center estimated that China was home to 162 million Internet users at the end of June, second only to the United States.
"The market size is huge," David Wei, Chief Executive Officer of Alibaba, told Bloomberg. He also said that there are more than 42 million small- and medium-sized businesses in China, all of them potential clients.
Alibaba also has a cavalcade of sister companies that include Taobao, a consumer site similar to eBay (EBAY), and Alipay, an online payment service similar to PayPal. According to BusinessWeek, half of all online payments in China are through Alipay, which hosts approximately 50,000 users. Those users are estimated to make 780,000 transactions a day.
Alibaba also has some very powerful partners moving forward. Yahoo! Inc. (YHOO) owns a 40% stake in the company and tech giants Cisco Systems Inc. (CSCO) and Hon Hai Precision Industries Ltd. also have invested.
The company's profit is expected to triple to 622 million yuan ($ 83.5 million) this year, Alibaba said in its listing prospectus. Goldman Sachs estimates earnings before stock-based compensation will be 1.24 billion yuan ($166 million) in 2008. Including those costs, profit is estimated to be 1.02 billion yuan ($140 million).
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