Jingdong Rushes IPO As Alibaba Valuation Flies

by: Doug Young

I previously predicted that e-commerce giant Jingdong would try to make a IPO in the first half of this year, and now we're hearing that the company has come out galloping in the Year of the Horse by filing a plan for a major New York listing. Word of the plan comes after a year-end boom for Chinese Internet IPOs in New York, most of which have soared since theirdebuts. Jingdong undoubtedly wants to try to seize some of that momentum, but equally important is keen to make its offering before the highly anticipated IPO of its much larger rival Alibaba expected later this year. Alibaba itself was also in the headlines over the Lunar New Year holiday, with the latest financials on the company adding further froth to its soaring valuation.

We'll return to the Alibaba story shortly, though I'll quickly say that its rapidly rising valuation is starting to resemble the "irrational exuberance" noted by former US Federal Reserve Chairman Alan Greenspan during the US Internet bubble of the late 1990s. But let's start with Jingdong, which has made its first public filing for a U.S. listing using the name JD.com. (English article) The choice of JD.com would mark just the latest name change for the company, which began as 360Buy, and then changed its name to Jingdong last year. (previous post)

Names aside, let's zoom in on JD.com's first public IPO filing for some details, which are admittedly scarce. Most significantly, JD.com has given a tentative figure of $1.5 billion for its offering, indicating the deal is likely to raise anywhere from $1 billion to $2.5 billion. That would be relatively consistent with previous reports, which have indicated that JD.com could have a market value of anywhere from $7 billion to as much as twice that amount.

The timing of this filing means we can probably expect an IPO before the end of March. JD.com has previously said it would meet its target of 100 billion yuan ($16.5 billion) in sales last year, and that it finally turned profitable around the end of last year. The company currently controls about a fifth of China's B2C e-commerce market, making it a distant second after Alibaba's 50 percent. All things considered, I do expect this offering should get a relatively good reception in the current positive climate, and would look for a final valuation around the $10 billion mark.

Meantime, let's look quickly at Alibaba's latest financials, which show the company posted a profit of $792 million in last year's third quarter, up 12 percent from the previous quarter. (English article) The modest profit increase came as Alibaba posted a 51 percent revenue gain, as competition remains intense and the company spends heavily on upgrades to its core e-commerce unit and on other related businesses.

The latest figures come in a public filing from U.S. Internet company Yahoo (YHOO), which has been one of Alibaba's biggest shareholders for almost a decade and regularly releases financial data on the company. Yahoo clearly has a strong interest in hyping Alibaba's valuation, and the report I read said the latest figures now value the company at just over $150 billion. That figure would make Alibaba China's most valuable Internet company, and is up from an already lofty $120 billion valuation based on a secondary market sale of company stock just 3 weeks ago. (English article)

There's not too much more to say about Alibaba's business, which is clearly quite profitable. The company should be an attractive investment option when it finally makes its IPO, which I expect will come in Hong Kong in the second half of this year. But I should also close by advising Alibaba founder Jack Ma that he might be wise to start tamping down expectations, which are accelerating so quickly that the company risks suffering a similar fate to Facebook's (NASDAQ:FB) disastrous IPO in 2012.

Bottom line: JD.com is likely to make a New York IPO by the end of March, valuing it at about $10 billion, while Alibaba should try to tamp down exploding expectations for its own upcoming IPO.

Disclosure: none