Alibaba’s listing raised eyebrows not just because of its size, but also because of its location. The firm chose to go public in Hong Kong instead of with NASDAQ in New York, a route favored by most Chinese tech companies as it is seen as a better place to attract investment.
One reason for choosing Hong Kong could be the less rigorous and expensive regulatory regime. The Sarbanes-Oxley Act means that companies listing in the US have to spend more to comply with regulations while the smallest carelessness can prompt severe punishments.
Opting for Hong Kong also means a second listing could be done in the US if even more capital is needed in future.
An important aspect of the listing is that it is only Alibaba.com, the business-to-business website, that investors are buying into. The consumer auctions site Taobao, the escrow service Alipay and the desktop client Alisoft remain under the purview of the Alibaba Group, of which Alibaba.com is also a subsidiary.
The financial reason for splitting up the group this way is that almost all of its revenue comes from the B2B site – about 90%, according to JLM Pacific Epoch. While Taobao, for example, has been successful in grabbing market share, it has still to become a profit center.
But another, typically shrewd, reason for taking only Alibaba.com public is that the other divisions will be able to operate in relative secrecy as Ma figures out a way forward. Indeed, he has said in the past that he liked the fact that Alibaba was a private firm competing against public giants as it gave him an information advantage.
“Jack Ma doesn’t want to give away too much of his mojo,” said David Wolf. “The longer he keeps his cards close to his chest, the more time he has to build these firms.”