With Chinese Internet behemoth Alibaba being preliminarily valued at $165 billion as it prepares for its initial public offering (IPO), it seems that investors are playing the same type of dangerous game they played in 1999.
At the time, “I Want It That Way” by the Back Street Boys was the top song. “Mega” was the top slang word, and IPOs were all the rage. Investors who “wanted it that way” would soon push the technology heavy NASDAQ Composite Index to a “mega” peak of 5,046, before the dot-com bubble burst and fell by 80%, costing investors a mega $5 trillion. The ludicrous valuation of Alibaba seems like a message that the current stock bubble is about to pop.
When Alibaba starts trading on about September 18, the e-commerce giant will already be bigger and more profitable than eBay and Amazon combined. But the halo-effect of spectacular riches from Alibaba’s valuation has encouraged another 261 with more speculative dreams than financial stability companies to file plans for initial IPOs. That tops the 256 that did so in all of 2013, and is the approaching the 308 companies that went public in 1999.
The center of this magic money machine is California’s Silicon Valley. Many adolescent companies with limited revenue and big dreams “have put their IPOs on hold for Alibaba, are expected to charge out of the gate this fall on the heels of what may be the biggest public offering in history,” according to the Contra Costa Times.
“They will want to ride the coattails of Alibaba,” said Lise Buyer, a partner at Class V Group in Portola Valley and an IPO adviser who guided Google’s 2004 offering. “If there is great enthusiasm for Alibaba, there may be some pedal to the metal while people are feeling in a good mood.”
The Alibaba “mega-deal” is on track to set the all-time-record “raise up” of $25 billion, blowing past the current world record of the $22 billion raised by Agricultural Bank of China in 2010, the $19.7 billion vacuumed up by Visa in 2008 and the $16 billion raised by Facebook in 2012.
By Alibaba going public in the U.S., the company seems to want to make a statement that foreign entrepreneurs and technology can compete with even the very best Silicon Valley innovators.
“This is a humbling moment,” Alex Ferrara, a partner at Bessemer Ventures told the Times. “I really believe that the valley does not have a monopoly on innovation and we are going to see over the next 10 years innovative companies like Alibaba emerging all over the world.”
Of the 100 U.S. IPOs that are slated to raise a combined $40 billion to raise a total $40 billion after Alibaba’s debut, 14 Silicon Valley tech companies are anticipated to raise mega-bucks, according to IPO tracker Renaissance Capital. San Francisco-based Lending Club, an online personal and business loan sit has set a tentative IPO target of $500 million; Burlingame-based airline Virgin America could raise $300 million; and Sunnyvale mobile security provider Good Technology seems set to raise $100 million.
But one of the hottest expected IPO deals was Box, the Los Altos cloud software company that was set to raise $150 million. Despite the company recently unveiling a new partnership with Microsoft, updating features in its cloud software services and releasing new products for retailers, health care providers and media companies; the Box deal is now on indefinite hold.
As I reported last week in “iCloud Hack Threatens Launch of iPhone 6 and Apple-Wallet,” the hacking of celebrity nude photos and videos stored on the Apple cloud may have clobbered the cloud concept over security concerns about cloud security and privacy.
Alibaba’s IPO will deal would push up the total cash raised in IPOs for 2014 to over $80 billion, 50% higher than last year and the largest IPO vacuuming of investor’s wallets since the year 2000. The valuation could go even higher with Alibaba is on a worldwide road show. The company has also contracted to start trading on the more prestigious New York Stock Exchange under the ticker symbol of “BABA.”
Investors should have listened to the lyrics from the Back Street Boys in 1999:
Tell me why
Ain’t nothin’ but a heartache
Tell me why
Ain’t nothin’ but a mistake
With IPO company valuations back at the mega speculative levels of 1999, investors are again signing “I Want It That Way.” They couldl soon be reminded: It’s like deja vu, all over again.