China’s Rising Internet Giants (5/14)

The article below highlights the extraordinary growth in China, and leading Chinese Internet companies.

ETF PM currently has long positions in Vipshop (VIPS).

Alibaba’s IPO Is a Sign of China’s Rising Economic Might

Cadie Thompson, 5/8/14

Alibaba’s initial public offering later this year will mark the end of an era and the beginning of a new regime on the global tech landscape.

The three Chinese Internet giants Baidu, Alibaba and Tencent—known as the BATs—are the big tech companies born out of the PC era, said David Chao, co-founder and general partner of Doll Capital Management (DCM). The e-commerce powerhouse Alibaba, which is the most profitable of the three, will be the last of the group to go public.

“In the future, when we look back at the event people will say that was the closure of the BAT era,” said Chao. “It’s also a beginning. It’s about China surpassing the U.S. economy. It is a beginning of realization that Chinese Internet companies are just as big and as valuable as U.S. ones.”

In terms of both market cap, as well as in the number of users, Chinese companies have already equaled or surpassed the U.S., Chao said. And Alibaba, which has an estimated value of $150 billion to $200 billion, could be the largest tech IPO ever.

“It’s a sign of the times,” he said, where Chinese Internet companies compete “on the same footing as U.S. companies.”

While this trend is new to many U.S. retail investors, venture capitalists have been pouring money into these companies for a decade at least, and have subsequently “done really well,” said Chao.

DCM, for example, has invested in more than 50 Chinese companies over the last decade, with 11 of them going public, 10 in the U.S.

Another, Sequoia Capital, has been behind some of the big Chinese Internet IPOs, including software maker Qihoo 360, which went public on the NYSE in 2011; online discount retailer Vipshop Holdings, on the Nasdaq in 2012; and the mobile game developer Ourpalm, on the Shenzhen Stock Exchange in 2012.

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