Weekend News and Blog Roundup – Alibaba IPO

E-Commerce  Giant

Don’t feel bad if you don’t know what Alibaba Group Holding Ltd does. An Ipsos poll conducted for Thomson Reuters found that 88% of Americans had never heard of the e-commerce company. Based out of China, Alibaba is like a combination of Ebay + Amazon, and is responsible for 80% of all online sales in the world’s second largest economy. Starting today Alibaba’s shares can be purchased on the New York Stock Exchange. This is the largest initial public offering in U.S. history, estimated to raise close to $22 billion for the company. There is a lot of interest in this IPO. Between 35 and 40 financial institutions placed orders for $1 billion or more shares each. Alibaba and its subsidiaries have huge brand recognition in Asia.

14-09-alibaba-brands

With a starting price of $68 per share, the company’s market cap starts at $167.6 billion, making it more valuable than iconic American brands like Walt Disney, Boeing, Amazon, and Ebay. For working or retired Canadians this is great news because the Canadian Pension Plan (CPP) invested $160 million when Alibaba was still private back in 2011 and 2012. Analysts predict that investment has at least tripled in return. Whether the CPPIB will hold the stock after IPO is another question but we shall see. The stock symbol is BABA if anyone is interested 🙂 Expect the trading volume to be huge today.

No to Independence

Yesterday Scotland voted on a referendum whether or not they want to separate from the U.K. 45% said yes, but the majority, 55%, voted for no. I guess Mel Gibson died for nothing. Jokes and politics aside I’ll explain the economic significance of this event. The central government in the U.K. currently gives equalization payments to Scotland which works out to be $2200 per individual. If Scotland had broken off from the U.K. they would lose this income along with other benefits such as financial insurance and economic stability. Banks in Scotland currently hold 12 times the country’s own GDP. If their banking system were to ever fail, Scotland alone would not be able to withstand such financial turmoil. The argument for separation is that Scotland would no longer have to give part of their oil revenue back to the central government in England. The North Sea oil off the coast of Scotland is like the oil sands in Canada. It generates a lot of money, and can easily replace the $2200 given to each person and maybe even more. But the question is what would Scotland do once that oil reserve runs out, which is only a matter of time? The uncertainty of future consequences outweighs the immediate thrill of economic freedom. Similar to Quebec’s referendum in the 1990s, it’s exciting to talk about the idea of independence but at the end of the day cooler heads prevail.

Tuition Inflation

Experts say that if current trends continue, the outlook is gloomy for would-be students in the U.S. as it will be much more expensive to attend college, and more of those that do attend face substantial student loan debts. The current average cost of tuition, room and board at a private non-profit college is $40,917, which is 1.7% higher from the previous year, according to The College Board. If the cost increases at 2% per year, then in 25 years from now incoming college freshmen might expect to spend as much as $68K in today’s dollars for their first year, and about $300K on an entire 4 year program. So heads up to would be parents. Be prepared. Start saving today 🙂

14-09-student-loan starting out with nothing 5 figure debt, generation forever indebted

Densification

B.C.’s population could grow by about 2 million in the next 25 years, an increase of 43%, according to a Statistics Canada projection. The report suggests that this growth rate is tied almost entirely to overseas immigration, and most of the new residents will be concentrated in Metro Vancouver. Not to sound like a realtor or anything but they’re not making any more land in Vancouver, so if you’re waiting for the right time to become a home owner, now would be the time 🙂 If the demand for housing will increase over the next 25 years due to population density then I think it’s safe to say Vancouver real estate prices will only be higher a couple of decades from now. Don’t try to wait for a market correction. What if prices go up 20% before a 20% correction? If you’re against timing the stock market then you should probably be against timing the real estate market too. BC currently has about 560,000 more people than Alberta. But 25 years from now Alberta is expected to surpass B.C. due to inter-provincial migration. Investing in Calgary or Edmonton’s real estate market is an even better idea, but I don’t live in Alberta.

 

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Blog roundup – Below are some finance and other articles from around the web this week.

  • Kapitalust explains how he benefits from using credit cards a lot
  • Asset Grinder updates his net worth – a huge $13K increase from previous month.
  • Passive Income Pursuit also shares his net worth update for August.
  • Mark from My Own Advisor warns against some common mistakes for DIY investors.
  • Jessica from Mo Money Mo Houses shares her budget from her recent trip to Montreal.
  • No More Waffles analyzes the healthcare giant GlaxoSmithKline. We don’t often hear about European stocks.
  • Vanessa’s Money has some pictures showing what it’s like living in South Korea
  • Lynx from Location FI shares what it’s like to travel solo.
  • Divhut shares some recent stock purchases too, like General Mills, and Unilever.
  • Money Propeller wraps up the week’s events with Friday Jet Fuel #11
  • My Dividend Pipeline announces McDonald’s dividend increase by 5%. I have 40 shares so yay :o)
  • Write Your Own Reality shares his passive income and blogging status.
  • Roadmap 2 Retire expresses his concern, which I agree with, about companies these days doing excessive share buybacks
  • Tawcan explains the powerful compounding effects of a DRIP
  • Financial Uproar looks at debt from a unique perspective. I completely agree. Debt is a tool. Learn to use it.
  • Div Gro shares his watch list of stock that has recently announced dividend increases. Maybe you own one or two of them.
  • Money Ramblings posted biographies about him and his wife. He likes The Sopranos, and she’s a Harry Potter fan.
  • The Money Pincher admits how her carelessness ended up costing her thousands of dollars
  • Doctor Alicia from Financial Diffraction shows how she balances her “Money Trifecta”

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Random Useless Fact:

If an infinite number of parallel universes exist with every possible scenario, then there must be a universe where parallel universes don’t exist.

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No More Waffles
09/19/2014 6:15 am

Thanks for the mention, F35! Great list of articles… I now know what to do this weekend. 🙂

I’m actually quite glad Scotland decided to vote no. From a European and political perspective a break-up would have been a disaster.

Have a great weekend,
NMW

Steve
Steve
09/19/2014 6:58 am

Thanks for the mention 😀

I remember this being a sobering quote on Alibaba:

“Should you invest in Alibaba? At its estimated offering price of $150-160 billion, I think that it is a fairly-valued investment, if you can overcome two fears. The first is that, as a shareholder, you are not becoming part owner of Alibaba, the Chinese online merchandiser, but instead get a share of a shell entity (the Cayman Islands based variable interest entity) that controls the operating company through a legal agreement (that exists because the Chinese government treats it as such, for the moment). The second is that you are buying a corporate governance nightmare, where this will remain Jack Ma’s company for the foreseeable future and you will have no say in what the company does, how it is overseen or its management decisions.”

Of course, the second half of that paragraph is no different than Apple under Steve Jobs 😛

Check out these insights on Alibaba:

1. aswathdamodaran.blogspot.ca/2014/09/alibabas-coming-out-party-valued-right.html
2. aswathdamodaran.blogspot.ca/2014/09/alibabas-governance-by-politburo.html

Alicia
09/19/2014 7:07 am

I’m going to start requesting everyone address me as Dr. Alicia 😉 Not actually, but it’s still kind of funny to me when people do. Thanks for the mention.

That is a huge list of Alibaba sites – and yet I don’t quite trust them! I’m glad Scotland didn’t say yes, not that it would have been that big of a deal to me personally.

The Asian Pear
09/19/2014 7:20 am

I knew Alibaba was big but I had no how big. Wow. And they really are into everything! Wow.
Also thanks for the shout-out. 🙂

DivHut
09/19/2014 8:02 am

Thanks for mentioning DivHut. Much apprecietd. I like that cartoon too by the way. Sad but true.

Money Pincher
Money Pincher
09/19/2014 8:05 am

Thanks for the mention! 🙂

About densification in BC… the traffic in Vancouver is pretty bad already, I can’t imagine what it will be like in 25 years when there is 43% more people here!

Tawcan
09/19/2014 9:08 am

Thanks for the mention. BABA is on a run today! Up 32.75%! Yahoo is making a killing from this lol.

Wish I have the money to buy some lands in metro Vancouver and leave them undeveloped for the next 10-15 years and wait for the value to increase.

PC
PC
09/19/2014 11:06 am

Ohh thx, I made it on your list. BNE.TO dropped dramatically days after I bought them at, but I’m not too worried about current fluctuation. OPPS, I bought BABA 10 shares @ $98 first drop of the hat… should have waited, another long haul before I see anything of it.

writing2reality
writing2reality
09/19/2014 11:37 am

Thanks for the mention F35! I hope you enjoy your weekend!

Lynx
Lynx
09/19/2014 6:25 pm

Liquid, that is a great listing of all the areas Alibaba are players in. Some of these I had no idea of like the ride share service. That tidbit on BC population increase is very interesting. With projections of such a fast growth rate and being driven by migration, I can agree with you that the time to get on the property ladder is now.

Thanks for the mention also in your weekly round up. I will definitely be reading some of your highlighted articles this weekend.

debt debs
debt debs
09/20/2014 4:13 am

My stock picking radar says that any company name that reminds me of the voice of Robin Williams must be okay. (Ya I’m that good). Yay for bolstering our CPP! Thanks for the link to our Frugal FinCon Fiesta!

Asset Grinder
Asset Grinder
09/20/2014 8:51 am

Thanks for the mention buddy. Watching the Alibaba madness unfold on cnbc on friday was a fun watch. Talk about hysteria! It overshadowed the iphone launch even.

My Own Advisor
09/21/2014 4:04 am

Thanks for the blog love, enjoy your weekend!

Jessica Moorhouse (@MoMoneyMoHouses)
Jessica Moorhouse (@MoMoneyMoHouses)
09/21/2014 4:18 pm

Thanks for including me in your link roundup! 🙂

Anne @ Money Propeller
09/22/2014 8:18 am

Ah! I didn’t realize that Alibaba had SO MANY subsidiaries. (I’ve been ignoring the IPO almost entirely.)
Nice chart, it makes things make more sense. I only knew of alibaba.com.

Vivianne
Vivianne
11/05/2014 6:29 am

Did you manage you buy any share ? It popped 20$ from its low of 85$

Vivianne
Vivianne
11/05/2014 1:49 pm

Pros: I guess the fact it has business similar to Amazon, Ebay, PayPal and ING Direct makes it very attractive (Facebook listed for $40, went all the way down to $16 (I was too afraid to buy into it, because it doesn’t actually sell anything, there is no tangible asset, but I now realize it has massive tracking of the facebook user, that it’s a huge assets, and advertising is their business). Another thing was it has “80%” of online business, not sure about that, but it’s a huge number.

Cons: Although, China or foreign country accounting will make it a huge risk if anything goes wrong, it will cause the market to go down. Warren “Buffett” is not a fan of IPO because he says it doesn’t make any sense trying to buy stock when the company is actively selling it. I praise your great mind, thinking like Buffett. It doesn’t offer any dividends, it’s bad for us trying to seek income from dividend.