Alibaba's E-commerce Unit Explores US IPO to Rival Amazon

Alibaba Group Holding Ltd.'s international online shopping division is considering a US initial public offering (IPO) to boost growth for its business, which includes prominent e-commerce brands Lazada and AliExpress. The company is in the early stages of deliberation, and the IPO's size has yet to be determined. Alibaba is discussing the IPO with banks that could potentially assist in its preparation for next year.

The international e-commerce unit, competing with Amazon.com Inc. in markets outside China, is one of six parts that Alibaba is dividing into. Valuations for the international business units vary, with Morgan Stanley in March pricing the "international retail" units, including Lazada and Trendyol, at around $29 billion. In contrast, a CICC analyst report from the same month valued the firm's international division at approximately $39 billion. However, growth has been inconsistent in recent quarters due to global recessionary fears, with Bloomberg Intelligence analysts Catherine Lim and Trini Tan estimating the unit's worth at least $19 billion, provided it reduces costs.

Alibaba's entire international e-commerce unit, which competes head-to-head with industry leader Amazon, is expected to IPO on Wall Street. This unit includes AliExpress, accounting for most, but not all, of the activity. Alibaba is preparing to split the company into six major divisions: online commerce in China, international online commerce, cloud sector, local services in China, logistics, and entertainment. Each of the six new companies resulting from the split will be independently managed by a separate board of directors and CEO. The companies will also have the ability to issue and raise capital in the financial markets, transforming Alibaba into a large holding company with six subsidiaries.

Alibaba executives previously stated that each business unit would have the flexibility to raise capital externally and potentially pursue its own IPO. The company's stock increased by 14% following the announcement of the split. Alibaba CEO Daniel Zhang, who will continue to serve as chairman and CEO of the holding company and the cloud business, stated that the market is the best litmus test and the stock surged after the announcement. Alibaba's shares will continue to be listed in New York and Hong Kong.

Currently, Alibaba is trading at a price of about $82, representing a value of $220 billion. Based on its expected earnings this year, it trades at a relatively low earnings multiple of around 10.8. According to analysts' forecasts for next year, it has a predicted earnings multiple of under 10. In comparison, Amazon, the industry giant, trades at a significantly higher multiple. The main reason for this discrepancy is Amazon's extensive technological activity, primarily in the cloud sector, and the discount that Chinese shares continue to receive due to concerns about the Chinese government's ability to harm Chinese companies. This risk should be considered, and it significantly lowers the profit multiples of Alibaba and other Chinese technology companies compared to similar American companies.

The potential US listing of Alibaba's international e-commerce unit could attract global investors wary of investing directly in China, despite increasing tensions between the world's two largest economies. In March, Alibaba announced plans to break up its empire into units such as e-commerce, logistics, and the cloud. Each business will potentially explore fundraising and an IPO at an appropriate time. Alibaba's CEO Daniel Zhang has stated that the company will consider gradually relinquishing control of some businesses but did not specify a timeline for any IPOs.

The international e-commerce unit, IDCG (International Digital Commerce Group), includes Southeast Asian online mall Lazada, AliExpress (popular in Russia, Latin America, and parts of Europe), Trendyol in Turkey, Daraz in South Asia, and the business-to-business marketplace Alibaba.com. In the final three months of 2022, the combined orders of Lazada, AliExpress, Trendy  ol, and Daraz grew 3% from a year earlier, led by Trendyol. The international unit accounted for about $9.5 billion or 7% of Alibaba's revenue in the last fiscal year and is headed by Jiang Fan, the former president of Alibaba's domestic online retail businesses Taobao and Tmall.

Other parts of Alibaba's empire have already begun moving forward with spinoffs. Cainiao Network Technology Co., the logistics arm of Alibaba, and Freshippo, its grocery chain, have started preparations with banks for IPOs in Hong Kong. Deliberations around an IPO are very preliminary, and the situation may change. IDCG responded to queries from Bloomberg stating that there is no IPO plan currently.

In the past, Alibaba has considered splitting off Lazada, one of the Chinese firm's most high-profile international brands, which competes with Amazon and Sea Ltd.'s Shopee in Southeast Asian markets such as Thailand, Malaysia, and Singapore. In 2022, Alibaba discussed raising at least $1 billion for Lazada before calling off negotiations with potential investors when talks stalled over valuation. The funding was intended as a precursor to a spinoff. Since then, Alibaba has shelved the fundraising plans and instead injected additional funds into Lazada.

Alibaba Group Holding's international e-commerce unit recently denied plans to go public in the United States, according to Chinese internet giant The Paper. The Hangzhou-based company, which operates Southeast Asian e-commerce site Lazada and cross-border marketplace AliExpress, reportedly stated that its Global Digital Commerce Group has no plans to list at the moment.

The unit was exploring an initial public offering in the US to consider options to spur business growth, as reported by Bloomberg News, citing people familiar with the matter. The IPO is in the early stages of consideration, and its size has yet to be determined. However, it could happen as soon as next year, the report added.

On March 28, Alibaba announced that it had split itself into six business groups to cope with a rapidly changing market environment. Each group will independently raise funds and go public when the time is right. Since then, speculation has abounded on IPO planning for some of the units, including Cainiao Smart Logistics and Cloud Intelligence Group. However, none of them has confirmed any such plans.

Alibaba's Hong Kong-listed shares [HKG: 9988] ended 1.2 percent higher at HKD81.65 (USD10.40) apiece, while its New York stock [NYSE: BABA] closed up 1.2 percent at USD82.49. The potential US IPO for Alibaba's international e-commerce unit could help the business attract global investors while navigating the challenges of the current market environment, as well as the ongoing tensions between China and the United States.