Today could see the biggest initial public stock offering in U.S. history, when Alibaba shares go on sale. After the Chinese e-commerce site raised a record $21.8 billion in its initial offering, shares were priced at $68 apiece, giving it a market value of $168 billion. That’s bigger than Facebook and Twitter.
The shadows of those two tech IPOs loom over the Alibaba (BABA) listing and tell two very different stories. One is a cautionary tale; the other a playbook for success. Facebook (FB) was a noted disaster, as software glitches led Nasdaq to severely botch the offering, pushing Facebook shares well below their initial listing price by the end of the first day of trading. On the other hand, shares of Twitter (TWTR), which listed with the New York Stock Exchange, soared 70 percent on the first day of trading last November.
Early indications are that the public demand for Alibaba shares will raise their price well above $68 by the end of the day. By 10 a.m. on Friday, news started leaking that shares would start trading closer to $80 a piece. Then it was $83. By 10:30 it was $87. By 11:00 it was $90. By 11:45 it was $93. At that price, Alibaba would have a market value above $200 billion. For those investors lucky (connected?) enough to get in on that initial $68 price, that’s a nice double-digit return for one day.
Alibaba finally started trading just before noon at $92.70 and immediately shot higher.
The wait was a clear indication that NYSE was taking extra precautions to ensure nothing goes wrong during those crucial first moments of a stock going public amid huge demand. That meant conducting an extra-long auction process this morning to settle on a price, and also making sure the exchange’s electronic matching engine is ready to handle the demand. My Bloomberg News colleague Sam Mamudi wrote about the care NYSE executives are taking with the Alibaba listing. To prepare, NYSE held two tests, one in July and one on Sept. 6, to allow brokers to check their and the exchange’s systems. The priority is getting it right, even if shares don’t start trading until much later in the day. “Whether it’s 15 minutes to get to that solution or an hour and 15 minutes, we don’t really care,” David Ethridge, the head of NYSE’s IPO unit, told Mamudi.
On Friday morning, Tom Farley, president of NYSE Group (ICE), said the auction could take two to three hours to settle on a price before trading begins. It’s “going to take a while,” Farley said on CNBC.
Shares of Twitter started trading 79 minutes after the 9:30 bell rang to open the exchange. By comparison, LinkedIn’s first trade was at about 10 a.m. on May 19, 2011, while Yelp needed only about 15 minutes in March 2012, according to data compiled by Bloomberg.
This is all part of NYSE’s bid to win tech IPOs away from its rival Nasdaq (NDAQ), historically the favored venue for technology companies, and where Microsoft, Apple, and Google all listed. Last year, 22 technology and Internet companies chose NYSE for their IPOs, compared with 15 on Nasdaq, according to Bloomberg data.
The Facebook debacle clearly still lingers over Nasdaq, and was part of the reason Alibaba went with NYSE, according to Bloomberg News. “Of course Facebook is something that is in the back of their minds at NYSE,” says David Weiss, an analyst at Aite Group. “They’re being extra careful and it’s understandable. Alibaba is going to be huge and the blowback of something going wrong would be enormous.”
