Last week, we witnessed a ‘Good Friday’ on how technology has risen in economic value at Apple and Alibaba. Just how much record capital was raised can be seen in these key charts.
“It is a rare day when good news about the iPhone does not lead to a surge in Apple Inc.’s stock, but that’s what happened on Friday, when the iPhone 6 went on sale around the world as Wall Street was focused on the Alibaba IPO,” reports MarketWatch.
Three days after the official launch of the new iPhones on Friday, Apple reported that the new devices had set a new sales record during their first weekend on sale. With more than 10 million iPhone 6 and iPhone 6 Plus units sold in three days, the new models beat last year’s record when 9 million units of the iPhone 5S and 5C had been sold in September 2013, charts Statista.
These launch weekend iPhone sales were contrasted in recent history, when 5 million units of the iPhone 5 had been sold in September 2012, when 4 million units of the iPhone 5S had been sold in October 2011, when 1.7 million units of the iPhone 4 had been sold in June 2010, and when only a million units of the iPhone 3G and 3GS had been sold in July 2008 and July 2009, respectively.
According to Apple’s CEO Tim Cook, supply constraints were the only limiting factor in achieving even higher sales this year. After Apple had long been reluctant to release a larger-screen smartphone, the outlook that the company would finally give in to consumer demand and release a larger phone had prompted analysts to predict the mother lode of all upgrade cycles prior to the phone’s release.
According to CNBC,
The big number is significant for multiple reasons. Many analysts had been expecting Apple to merely match last year’s launch tally, given that the company’s biggest growth market, China, wasn’t in play.”
Photo Credit: Brent Lewin/Bloomberg. “A woman loads a page on the Alibaba Group Holding Ltd. app while using an Apple Inc. iPad in this arranged photograph in Hong Kong.”
Chinese e-commerce company Alibaba – which is ebay auction, PayPal bank, and Amazon retail shopping center all wrapped into a single e-commerce holding firm in control of 70 percent of the Chinese e-commerce marketplace – made its stock market debut on Friday in what turned out to be the largest initial public offering (IPO) of all times. Initially allocated to raise $21.8 billion at a price of $68 per share, Alibaba’s underwriters decided to exercise an option to sell additional shares pushing the total IPO value to $25 billion, Statista reports.
After opening at $92.7 on Friday, Alibaba’s share price quickly rose to almost $100 before coming back down and closing at $93.89, which represents a 38% increase from its IPO price.
Stock price gains of high-profile online firms on their first day of public trading (closing price versus IPO price) charted below, showing therein (summarizing here for clarity to a majority of readers on mobile devices) ebay at 163.2% on September 24, 1998, Yahoo! at 153.8% on April 12, 1998, LinkedIn at 109.4% on May 19, 2011, Twitter at 72.7% on November 7, 2013, Amazon at 30.6% on May 15, 1997, Google at 18% on August 19, 2004, and Facebook at 0.6% on May 18, 2012.
Alibaba’s first day pop was high at 38%, but not huge. Most recently, Twitter’s shares had soared 72.7% on the company’s first trading day last November. Facebook’s shares, in contrast, had hardly moved beyond the IPO price, when the company went public in 2012.
Facing the largest e-commerce phenomenon in the world in Alibaba after its Wall Street ‘Good Friday’ hangover, questions are now surfacing about the e-commerce giant’s valuation, its issuing of additional shares, its future growth value, and its competitive strategy inside the China marketplace. Wall Street first-day pops do not always predict a successful IPO. While the market appreciates the positive headlines, Wall Street big pops sometime suggests the IPO was not accurately priced by its underwriters. Hence, the issuing company could have raised more cash in the capital markets. “Alibaba’s underwriters appear to have found the right balance here,” says Statista. The e-commerce giant’s share price climbed high enough to leverage positive headlines without leaving too much cash on the table.
Rob Sanderson, MKM Partner analyst, wrote to his clients about his early research coverage of Alibaba.
“For an emerging economy, China has strong broad band and wireless infrastructure with weak brick-and-mortar retail infrastructure.”
Alibaba has an enormous global competitive advantage of economies of scale in 279 million active buyers, driven by its advanced wireless mobile business, including 1.3 billion wireless subscribers in China, Sanderson points out. Alibaba has also maintained huge economies of scope in 50% to 90% market share in the retail categories it serves, as the huge holding firm conducts about 70% of the overall e-commerce business in China.
“The company takes no inventory risk, and does not bear the burden of building fulfillment capabilities,” Sanderson wrote. Operating margin was 43% in June, a multi-quarter low, and has been as high as 51%. In comparison, Amazon said second-quarter operating profit margin was a negative 0.1%, compared with a positive 0.7% in the first quarter.
Bottom Line Takeaway:
About 50 percent of the Alibaba growth stock allocations and public trading on Friday went into few (nearly 25) investor (or underwriter) hands. So, larger numbers of investors may need to pause slightly until the extremely expensive Alibaba stocks continue to grow in value and until dividend yields mature.
According to CNN on Wednesday September 24, 2014, it appears that Alibaba’s Good Friday hype is over, as the e-commerce giant’s first day pop has dropped about 12%.
Apple, in contrast, is a long-hold value stock based on strong product sales in the marketplace with huge dividends to investors growing in the long-run.
Apple’s technologies, as an enormous “value stock”, and Alibaba’s e-commerce, as a giant “growth stock”, combine to fuel advances in wireless mobile communication devices, clouding-streaming, big-data, and social media. Altogether, these advances are expected to exponentially feed consumer demands for such mega-technologies and global e-commerce for years to come.
Photo Credit: Brent Lewin | Bloomberg | Getty Images. “The Alibaba Group Holding Ltd. application loading page is displayed on an Apple Inc. iPad, rear, and iPhone 5s in an arranged photograph.”
Title Photo Credit: Brent Lewin/Bloomberg.”The application for Alipay is displayed on an Apple Inc. iPhone 5s and iPad respectively, in an arranged photograph. Alipay, an online payment system like EBay Inc.’s PayPal, is owned by Alibaba founder Jack Ma and the company’s partners.”
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