Alibaba IPO Research & Analysis Essay Examples & Outline
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Alibaba IPO Research & Analysis
Alibaba is a major player in the online retailing industry that has witnessed the largest initial public offer in the history of the listings. The company was able to raise over 21.8 billion shillings in the initial offer. The performance of the company has increased over the years owing to the increasing middle class in a 1.36 billion people country. Due to the readiness of the market and operational efficiency of the company, there was widespread confidence that it will perform after listing in the United States. The loyalty led to two scenarios that have affected the performance of the stock ever since. One of the e scenarios was the increased number of large investment companies that bought in bulk the shares.
Most of the renowned banks in the United States were slotted for over $ 1 billion worth of shares in the iPod. Guaranteed bulks of the shares to the big players led to bolstering of the confidence of the common investor. The second scenario, closely related to the first one, is the inability of the common investor to buy the stock since the initial issue was oversubscribed. Due to this aspect, the members of the public are forced to trade in the secondary market whereby their demand for the shares creates the high prices. The public confidence and the subsequent oversubscription for the shares have led to the increased performance of the share (Espinasse, 2011). The only time that the shares slumped was due to the externalities in the mother country since it also affected the Chinese companies cross-listed in the United States.
Companies have different motivations when issuing an IPO. Most of the motivating factors are drawn from the strategy of the company whereby it could be seeking additional funds to fund an expansionary strategy. On the other hand, companies follow external motivations and issue initial public offers. The main reason for the initial public offer is to raise funds for the operations of the company at the most favorable rates possible. Listing of a company often is the cheapest source of capital. It is also the motivation for companies going public. The second reason for being publicly listed is to increase the shareholders’ value. The third reason for going public is to increase the awareness of the company among the public players. The final reason for a public issue is to come up with a currency that can be later used in the acquisition process.
The price of the share in the market is often determined by the supply and demand forces (Gregoriou, 2006). The newly issued shares are also subject to the rules of supply and demand whereby they are most likely going to be bought at the prices that the people are willing to buy it. Setting up of the prices of share in the initial public offers is tricky since there is no trading history for the product. However, there are pointers commonly used to evaluate the initial share price of a company that has never traded before (Zattoni & Judge, 2012). One looks at the reasons for the company going public, the intended use of the funds raised in the initial public offer, the competitive outlook of the market in which the company trades, the prospects that the company has at growth, the management prowess and the operating history of the company.
Espinasse, P. (2011). Ipo. Hong Kong: Hong Kong University Press.
Gregoriou, G. (2006). Initial public offerings. Oxford: Butterworth-Heinemann.
Zattoni, A., & Judge, W. (2012). Corporate governance and initial public offerings. Cambridge, UK: Cambridge University Press.