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 Alibaba, which sells more than Amazon.com Inc and EBay Inc combined,
could raise over $21 billion in its IPO. It is often described as
technology's hottest initial public offering since Facebook Inc’s
2012 debut, although initial pricing announced on Friday was less
than many predicted.
Retail investors generally get only 10-20 percent of shares in big
IPOs, and several advisers told Reuters they had expected a scramble
from clients. But the phone has not been ringing off the hook.
“People are on Facebook, they know it, but no one has ever heard of
Alibaba," said Mecca, who has $175 million in assets under
management.
The number of client inquiries about the Alibaba IPO is around a
quarter of what it was for Facebook at this stage of the process and
about half of what it was for Twitter Inc, said Steve Quirk, senior
vice president of the group serving active traders at discount
broker TD Ameritrade Holding Corp.
Robert Christie, a spokesman for Alibaba, declined to comment,
citing the company’s pre-IPO quiet period.
Alibaba’s decision to price its shares between $60 and $66 per
American Depository Share is an indication that the company may not
be too concerned about having a big U.S. retail investor base, since
retail investors prefer stocks that cost much less per share.
Alibaba could have raised the same amount of money by selling more
shares at a lower price.
One consequence of retail investors sitting out the debut could be a
muted first day of trade, rather than the "pop" many expect from a
tech IPO.
“Because it is such a large deal and you aren’t going to see a lot
of retail investor interest, I do not think it’s going to have a lot
of momentum when it gets out of the gate,” said Tom Taulli, an
independent IPO expert.
Longer term, tepid U.S. retail interest could be a drawback for
Alibaba. Individuals tend to hold stocks longer, providing stability
to the share price, and they help diversify the shareholder base.
Having too much concentration among a small number of institutional
investors, for example, could make the company vulnerable to attacks
by activists, IPO experts said.
"I think a strong retail base is much better for Alibaba," said
Josef Schuster, founder of Chicago-based IPOX Schuster LLC, which
helps create index funds for IPOs.
Still, retail interest could ramp up. Bargain hunters could take
note of the lower-than-expected initial price and the company's
pre-IPO roadshow, to promote the offering to fund managers, could
spark wider interest.
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The roadshow kicks off on Monday in New York and is expected to
reach around the globe to London and Hong Kong. That will provide
stronger evidence of institutional investor interest and indicate
whether shares are likely to be priced in the initial range.
Industry analysts had expected Alibaba to lock down a valuation of
more than $200 billion, but the high end of the initial range would
put it about $163 billion.
OTHER WAYS IN
Alibaba has some major, publicly traded investors, which give
Alibaba fans other ways to get into the stock early. One UBS AG
adviser said that some retail clients expecting to get shut out of
the IPO have opted to buy shares of Japan's Softbank Corp, which has
a 34.1 percent stake in Alibaba going into the IPO.
For the same reason, James Gambaccini, a Fairfax, Virginia-based
independent financial adviser, said he has a few clients that have
opted to invest in Yahoo Inc, which has a 22.4 percent stake in
Alibaba. Softbank's and Yahoo's stakes will shrink from dilution in
the IPO, and Yahoo will sell some shares, but both will remain major
Alibaba shareholders.
But for the most part, Gambaccini said the demand for Alibaba shares
has been lackluster, partially because many people have not heard of
the company and some who know about it were wary of China, concerned
by the potential for government interference, for example.
Alan Haft, a Newport, California-based adviser, has been trying to
interest clients in Alibaba for months. But he said it has been an
uphill battle.
"It's clear to me that most people know very little about this
company and just how enormous the IPO is likely going to be as well
as how impactful this company is," Haft said.
(Reporting By Jessica Toonkel; Additional reporting by Olivia Oran,
Lauren LaCapra and Liana Baker in New York; editing by Paritosh
Bansal and Peter Henderson)
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