Alibaba and the 40 IPOs: What it means for other offerings

Traders work on the floor of the New York Stock Exchange in New York.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange in New York.

At last, Alibaba has announced its initial public offering (IPO) terms. I was puzzled that Alibaba waited until after the close of trading on Friday, particularly since they want to begin trading just two weeks later.

Here are the big questions that were batted around over the weekend:

a) how will investors fund their purchases of Alibaba? Will there be selling in other Chinese tech IPOs? What's the trade? Several investors tell me that, given all the advance warning about this, there is already ample cash in place for the purchase.

I'm not so sure about that. This is going to soak up a lot of IPO air. People who made money in stocks like Jumei, or Weibo or Vipshop, may be willing to lighten up., for example, started trading on May 22nd; Jumei, which went public the week before, fell 10 percent that day, so did Jumei and Vipshop.

b) Will the IPO floodgates open now that Alibaba is coming? There are very few deals set for September—an indication that no one want to get in Alibaba's way. There's a few biotech offerings this week, but no big tech IPOs. It may pick up now that Alibaba is clearing the decks.

In fact, it may already be happening. Today, Citizens Bank, a Rhode-Island based bank with large branches in the Northeast and Midwest, announced terms for their IPO: 140 million shares at $23–$25 will price on September 23rd for trading on the 24th.

c) How big is the deal? Very. Whether or not it is the largest IPO, it is certainly soaking up a lot of the demand for new offerings. There have been about $40 billion worth of IPOs so far this year, according to Renaissance Capital. Let's assume it prices at the high end: 320 million shares at $66, which at $21.2 billion would indeed make it the largest IPO.

That's 50 percent of the entire IPO market this a single offering! Assuming the total IPO market is $80 billion, Alibaba would be about one quarter of the IPO business for the year.

d) Why the $60 to $66 price range? That struck me as odd. Most IPOs price in the $20–$30 range to attract retail flow.

According to Renaissance, only 2 of the 108 IPOs that have priced over $1 billion since 1997 have had a price over $66 (Google at $85 and Alcatel at $71.95). This seems to indicate they Alibaba is not too concerned with the retail trade.

Perhaps they figure that Alibaba will not attract anywhere near the retail interest that Facebook or Twitter did; they may be right. Does this sound arrogant of them? Maybe, but if you had 80 percent plus market share in the China e-commerce space, maybe you could afford to be.

--By CNBC's Bob Pisani

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

Wall Street