Alibaba's Ma Tops Rich List As Profits Leap

| About: Alibaba Group (BABA)

Jack Ma takes over title as China's richest man

We'll have to wait a few weeks to see who wins the title for China's most valuable Internet company, but the champion for wealthiest chief executive has just been declared with Alibaba (NYSE:BABA) founder Jack Ma beating out Tencent (HKEx: 700) chief Pony Ma for the title. That declaration, based on estimates by Bloomberg, comes after release of the latest public filing from Alibaba in the run-up to its highly anticipated IPO that could come in less than 3 weeks. That filing also showed that profits from China's leading e-commerce company rose 60 percent in the second quarter, an impressive feat for a company of its size.

Reports earlier this year indicated that Alibaba was aiming for a New York IPO on the auspicious date of August 8, which symbolizes wealth in Chinese and whose Chinese pronunciation also sounds like the company's future ticker symbol of BABA. But that lucky date has now come and gone without an offering, reportedly because it fell during the slow summer months when many US bankers and big investors are on summer holidays.

According to reports earlier this month, Alibaba is now aiming to start its investor roadshow next Wednesday, a couple of days after the US gets back to work following the end-of-summer Labor Day holiday. If all goes according to plan, Alibaba's shares would debut on the New York Stock Exchange on September 16, with the company expected to raise up to $20 billion, making it one of the biggest Internet IPOs of all time.

That IPO will put an official value on Alibaba, which in turn will put a value on the fortune of company founder Jack Ma. But Bloomberg has gone ahead and done its own calculations based on the company's latest filings, pegging Ma's fortune at $21.8 billion, based on his 7.3 percent stake in the company he founded. (English article; Chinese article) That amount would make Jack Ma China's richest man, with a net worth that is $5.5 billion more than Pony Ma, founder of Tencent.

Bloomberg's calculation looks slightly off to me, since it would value Alibaba at nearly $300 billion, based on the assumption that nearly all of Jack Ma's fortune comes from the 7.3 percent stake he owns in his company. Previous reports have estimated that Alibaba's value is probably closer to half of that amount, around $150 billion. Of course my assumption is probably at least partly flawed, since Ma also holds a number of other major assets, most notably a stake in Alibaba's Alipay electronic payments division, which isn't part of the IPO.

Regardless of any of those calculations, the figure for Alibaba to beat to become China's most valuable Internet firm will be $150 billion, which is the latest market capitalization of Tencent. That figure looks like it should be within reach for Alibaba, at least based on its latest earnings report that shows very healthy growth for a company of its size.

According to the report, combined transaction volume for all of the company's e-commerce platforms hit nearly 1 trillion yuan ($160 billion) in the first half of the year. (Chinese article) In the second quarter, transaction volume from the company's popular retail-focused platforms, including Tmall and Taobao, jumped 45 percent to 501 billion yuan. Excluding one-time items, its second-quarter profit rose 60 percent to 7.3 billion yuan, as revenue jumped 46 percent to 15.7 billion yuan.

Alibaba has become such a complex company over the last year due to a wide range of M&A and other new tie-ups that it's hard to give a simple assessment of its future prospects. But what does seem certain is that it will seriously challenge Tencent in terms of company valuation, and that its IPO is likely to get a strong reception at least initially. After that, much will depend on how well it can integrate its many new business, and how it faces growing challenges on many fronts from companies like Tencent and (NASDAQ:JD).

Bottom line: Alibaba stands a good chance of passing Tencent in valuation after its IPO next month, which should get a relatively strong reception following its latest upbeat earnings report.

Disclosure: None

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