Alibaba IPO: 5 Reasons Why The Stock Is Not Overvalued

Chinese e-commerce giant Alibaba raised $22 billion through the biggest initial public offering in U.S. market history. The company is a mainstay in China, but is far less familiar in households around the world. Here are a few pertinent facts on the company that present a compelling bull case for the newly issued stock:

• In 2013, two of Alibaba’s websites were responsible for $240 billion in sales. The Wall Street Journal reports that this is twice the size of Amazon, triple the size of eBay, and one-third larger than Amazon and eBay combined.

• 80 percent of China’s e-commerce transactions go through Alibaba and the company accounts for 60 percent of all packages delivered in the country. Backers say this near-monopoly justifies the sky-high IPO.

• Alibaba's 231 million annual active buyers place 11.3 billion orders per year, according to the company's F-1 filing.

• Jack Ma's erstwhile startup is now on track to become the first e-commerce company to handle one trillion dollars of transactions in a year. From The Economist: "Gordon Orr, a senior partner at McKinsey, [...] says that if Alibaba can sustain its leadership in its current market and expand strongly into finance, the management of the supply chain and other services, 'it could become one of the world’s most valuable companies five years from now, with potentially more than $1 trillion of sales passing through its platforms each year.'"

• These highlights aside, the company is also heavily diversified. It sells search ads to be displayed on its storefront sites, making extra cash in a manner similar to Google. It has a payments system called Alipay that was responsible for 70% of China’s mobile payments business in 2013. It even got into the loans industry — for the past three years, Alibaba merchants who want a loan have been able to get them from the company at an average size of $8,000. This will eventually expand to include loans to individuals, and even insurance.

A good introduction to the company for Alibaba neophytes is this Businessweek story by Sam Grobart, in which he uses the company's platform to custom-order 280 pairs of delightfully ridiculous neon pants. Not only does Alibaba connect buyers with merchants selling items ready for purchase, it will connect them with merchants ready to make what they want to buy.

Grobart found a clothier in Pakistan that was an Alibaba Gold Supplier, a tier that manufacturers can pay for after submitting to various background checks. It lends credibility to the storefront and makes consumers more willing to part with their cash when ordering custom goods — after all, Grobart ordered 280 pairs of pants for a total of $4,503.

Here's Grobart's report:

The takeaway is straightforward: Alibaba is a monster, even to the point that it represents a very real threat to Amazon. Consider that Alibaba's IPO shares were priced at $68, setting the company up with an initial market value of some $168 billion. That figure markedly exceeds Jeff Bezos' company's market cap of $150 billion, assuming yesterday's closing price of $325 per share. And e-commerce is only one leg of this growing octopus of a business.