If you have been reading the news lately, you have probably heard about Alibaba making headlines. The company filed an initial public offering, also known as an IPO, in the New York Stock Exchange under the ticker symbol BABA. Many are talking and speculating about their opening on Friday as a public company. The reason for the commotion is the media hype stating how this will be the largest public offering ever. So, everyone wonders: What’s all the fuss about? Should I buy shares? Am I going to miss an opportunity to make extra cash?
For those of you who have not heard of Alibaba, it is a privately owned group under the Alibaba Group Holding Limited. They operate based on e-commerce, B2B web portals, online retail and shopping engines, among others. The company in 2012 handled approximately $170 billion in sales; this is more than Ebay and Amazon joined together. Alibaba operates in China since 1999 under www.alibaba.com.
It sounds like a great company, correct? If you would like to gamble your hard earned money and invest it in BABA (Alibaba), by all means, go ahead. This is not to say that BABA or any other IPOs are horrible companies in which you should never invest. In the end, all available public companies began as IPOs. However, the difference between an IPO and a company that is already established as a public company is what you know about their business. Any filing done by the company while private is just that, private. Information on how the company functioned privately is not available to the public, whereas a public company’s financial reports are accessible and can eventually be analyzed over time.
This initial public offering is looking to raise $25,000,000,000, and yes, that is 25 Billion. Let’s say you have $25 billion in your bank account, would you buy Alibaba just on this news, just because a bunch of brokers are promoting the sale? I don’t know about you, but I would not be willing to gamble $25 Billion on a business I don’t know generates enough cash for operations, or if it has been growing in the past fifteen years and to what extent (debt, equity, etc.).
Just remember. When you buy a stock, you are a shareholder, a partial owner of a business. The most powerful choice you have is your ability to decide. If when buying shares in a company, you do not feel secure on your decision, then, why put money in it? The majority of IPOs lack the information to make a sound decision. There is no available track record to forecast the future of any company.
There are plenty of companies out there for you to have to wager your money on the unknown.