http://www.bloomberg.com/news/2013-07-17/alibaba-gains-momentum-for-ipo-with-profit-margin-double-apple-s.html

Alibaba Gains IPO Momentum With Margin Double Apple’s

Alibaba Group Holding Ltd., China’s largest e-commerce company, is building momentum for a possible initial public offering this year with profitability double that of Apple Inc.Alibaba posted a profit margin, which measures net income as a proportion of sales, of 48.4 percent in the March quarter, according to an earnings presentation by Yahoo! Inc. (YHOO), which owns a stake in the company. Apple, the maker of iPhones and iPads, had a margin of21.9 (AAPL) percent in the same period.Profitability is being stoked by surging demand for services connecting businesses and consumers to each other across China with billionaire Chairman Jack Ma last year saying Alibaba could go public within five years. With analyst valuations of as much as $120 billion, the earnings growth is positioning Alibaba for a potential IPO, said Michael Clendenin, Managing Director at RedTech Advisors.“All Alibaba has to do is to show that they can deliver one more quarter of strong margins,” said Clendenin. “Then they’re in a very good position for an IPO in the second half of the year.”John Spelich, a spokesman for Alibaba, didn’t respond to an e-mail seeking comment yesterday on the company’s profit margins. The company has no timetable for an IPO, hasn’t hired bankers and hasn’t selected a location for a prospective public offering, he said in a previous e-mail yesterday.U.S. RivalsAlibaba doesn’t sell merchandise itself. Instead, it runs platforms including Taobao Marketplace and Tmall.com that connect retail brands with consumers, a cross between Amazon.com Inc. (AMZN) and EBay Inc. (EBAY) It makes most of its sales from commissions and advertising.The Chinese company’s profitability is far higher than its U.S. rivals. Amazon.com, the world’s largest online retailer, had a net income margin of 0.51 percent in the March quarter while EBay Inc., the biggest auction site, had a margin of 18.1 percent.Alibaba’s earnings more than tripled to $669 million in the quarter on sales that surged 71 percent to $1.4 billion. The company posted more revenue in the period than Sunnyvale, California-based Yahoo.In 2005, Yahoo agreed to pay $1 billion in cash for a 40 percent stake in Alibaba, which also took control of Yahoo’s China operations. Yahoo now owns about 24 percent of Alibaba, a stake it values at $8.1 billion, according to the presentation.Evercore ValuationEvercore Group LLC analysts, including New York-based Andrew McNellis, raised their valuation of Alibaba to $120 billion from $90 billion, according to a note dated yesterday.Sameet Sinha, a San Francisco-based analyst at B. Riley & Co. boosted his estimated value for Alibaba to $101 billion from $77 billion, according to a note.Facebook Inc., the biggest technology IPO of 2012, was valued at $104 billion prior to its listing.“Alibaba is still in the early days,” said Mark Tanner, founder of China Skinny, a Shanghai-based research and marketing agency. “The curve is going to be a lot more vertical than a Facebook.”As analysts reassess the value of the company, Ma is facing criticism for comments he made in a media interview. Activists started an online petition and asked the billionaire to apologize for comments he made related to the June 4, 1989 Tiananmen Square crackdown in which hundreds of people were killed when the army cleared protesters who had occupied the square in the center of Beijing.Tiananmen Square“This wasn’t a perfect decision, but this was the most correct decision,” Ma said in an interview with the South China Morning Post that was published July 13. “At any time, a leader must make a

decision like this.”Ma said his remarks “caused a terrible misunderstanding,” and that he made them to describe the circumstances when he had to make tough decisions as CEO, according to an e-mailed statement from Florence Shih, an Alibaba spokeswoman in Hong Kong.Alibaba accounted for 70 percent of package deliveries in China last year, Ma said in a letter published in February in a newspaper owned by the State Post Bureau. Sales on its two main platforms reached 1 trillion yuan ($163 billion) in 2012, while China’s nominal GDP reached 51.9 trillion yuan, according to the National Bureau of Statistics of China.The Hangzhou, China-based company has expanded lending, secured financing and made acquisitions since Ma flagged the potential IPO last year.The company last month closed the general syndication of an $8 billion loan, three people familiar with the matter said. In April, it agreed to pay $586 million for about 18 percent of Sina Corp.’s Weibo, China’s largest Twitter-like service.“Jack Ma doesn’t want to get in the ring and fight with all these other guys,” said RedTech’s Clendenin. “He’s already figured it out that he can host the fight.”To contact the reporters on this story: Lulu Yilun Chen in Hong Kong atychen447@bloomberg.net; Alan Wong in Hong Kong at awong478@bloomberg.netTo contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net