Amazon + EBay + Facebook = ?

Alibaba Chairman Jack Ma

Photographer: Huang Zongzhi/Xinhua via Zuma Press

Alibaba Chairman Jack Ma

How much will Alibaba Group Holding, the giant Chinese e-commerce company, be worth when it goes public? Just a few weeks ago it was routine for articles to say “over $100 billion.” Now a $200 billion figure is getting bandied around.

Having first heard those numbers, The Market Now thought, “Whoa.” Now that Alibaba’s financial info is out in its first public filing, they actually feel too low.

Here’s why: In the last nine months of 2013 (Alibaba’s fiscal year goes through March 31, so full-year numbers aren’t available yet) Alibaba earned $2.82 billion. That is essentially the same as EBay Inc.’s $2.86 billion for the full year of 2013. So right now Alibaba is already earning more than EBay, which has a market capitalization of $63 billion.

The big difference is that EBay’s profits are roughly flat. Net income actually fell from 2011 to 2012. Meanwhile, Alibaba’s have exploded. Its earnings doubled from March 2011 to March 2012, doubled again the next year, and are on pace to more than double for this year. If every dollar of Alibaba’s profits was valued the same as EBay’s, Alibaba would already be approaching that $100 billion market capitalization.

Almost certainly the market will value each dollar of Aibaba’s earnings at more than that. It’s not really meaningful to compare Alibaba’s financials directly with Inc., because Amazon makes so little money. But you might think of Alibaba as a stock with a story like Amazon’s (market cap $133 billion), profits better than EBay’s (market cap $63 billion) and growth faster than Facebook (market cap $147 billion). So what does that add up to?

PS: Don’t take any of this as a judgement on the absolute long-term worth of EBay, Amazon, or Alibaba. The market may be overvaluing EBay and investors have been spectacularly indulgent of Amazon. The point here is that if investors tote up the value of Alibaba’s earnings in the way that they have those of other internet companies — and there’s every reason to think they will — then we’ll see a sky-high market cap at the IPO.

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