Learning from the best: Alibaba’s IPO Valuation
AMONG FINANCE TYPES, a parlor game of the past few months (years?) has been estimating (guessing?) what Alibaba’s IPO valuation will be when it becomes a US-listed public company, hopefully later this year. Depending on who you ask, the answer is usually anywhere from $100-$250 billion…impressively large for a Chinese company few Americans are familiar with. At the midpoint, larger than both Amazon ($139B) or Facebook ($153B).
A few days ago, NYU Professor of Finance Aswath Damodaran, threw his hat into the ring, offering a well-reasoned and highly-detailed estimate of $142.6 billion USD. Many consider Damodaran to be an equity valuation expert, both inside and outside academia. I certainly do. His analysis appears on his popular blog (here) and was the subject of a CNBC interview the following day. He has also opined on other popular companies like Apple and Tesla.
I have been following the Alibaba story since I was fortunate enough to visit the company’s headquarters in Hangzhou, China on a class trip in 2011. Alibaba was literally China’s first internet company when it was founded by then-English-teacher Jack Ma in 1999 after a trip to the United States. Since then it has grown to a truly colossal scale, processing $248 billion USD in gross merchandise value last year, more than eBay and Amazon…combined.
Back to the story: when Damodaran originally posted his valuation and the calculations behind it, I noticed something was missing. He had overlooked a sizable payment that Alibaba was to received at some point in the future from its Alipay subsidiary (similar to PayPal) in the amount of $2-6B USD—most likely to be $6B USD. This was easily missed as it was buried in the fine print on page 202 of of the company’s 300+ page F-1 filling.
In the comment’s section, I had to point out the omission for accuracy’s sake. The next morning I woke up to a comment from Damodaran himself acknowledging my comment. A few hours later, his valuation was updated to include the Alipay payment and a new valuation for Alibaba of $145.6 billion USD. Obviously this change isn’t huge in percentage terms (about 2.1%) but does represent billions in shareholder value. See the pictures below for the before and after valuations.
It’s always cool to be acknowledged by somebody you respect.
I learned almost everything I know about valuation from Professor Damodaran’s book, “Investment Valuation”. I highly recommend it.
Before:
After: