Following Alibaba, its online merchants now eye listings
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E-mail China Daily, May 25, 2016
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Linshi Muye home appliance flagship store sells various types of beds for adults and children. The store ranked eighth by gross merchandise volume at Tmall, the B2C platform owned by Alibaba Group on Nov 11, 2015, the largest promotion day of the e-commerce giant.[Photo/lshmy.tmall.com] |
"E-commerce is a super-competitive business, every one is running fast all the time. At some point, even if you run a bit slower, you will be chased up, but you may never get ahead again."
Thankfully for firms such as Taotall and Mayn, equity investors regard e-commerce stocks as darlings.
According to financial data provider Wind Information, the average price-to-earnings ratio for e-commerce-related stocks on the Shenzhen Stock Exchange was 142 times by the end of April, compared with 46 times for all stocks listed on it.
To help IPO-minded online merchants wade through legal and procedural waters, Alibaba set up a special department in March. The initiative will act as a go-between linking merchants, bourses and China's securities regulator.
Earlier this month, Alibaba led a delegation of executives from 50 online merchants to the Shenzhen Stock Exchange on which most of China's tech stocks are listed.
Gu Ying, head of the initiative, said: "We think the flow-on effect of the listing of Alibaba's online merchants is going to be even bigger than that of Alibaba's listing itself."
Alibaba's IPO in New York in September 2014 was the world's largest, raising more than $25 billion. More than 10 million merchants are active on its online platforms. The e-commerce giant announced its annual sales for the fiscal year ended March exceeded 3 trillion yuan and overtook Wal-Mart Stores Inc, making it the world's largest retailer.
But the IPO aspirants will find the going a lot tougher than that, in spite of their boundless enthusiasm and energy. Fair valuations for a diverse range of e-commerce firms with intangible assets are not easy to obtain because such assets are not readily recognized by regulators and investors.
Huang Song, a professor at Peking University's Financial and Industrial Development Institute, said there is no roadmap for such firms to follow, which means an online merchant's journey toward an IPO could be bumpy.
"For instance, IPO applicants are required to get their earnings audited. But, when it comes to online retailers, it's hard to tell at which time incomes become realized as revenue," he said.
"Sometimes, an online retailer adds a transaction to revenue when the parcel is sent off on delivery, and sometimes the transaction gets booked as revenue when the buyer receives the parcel."
Many of online retailors rely on external online marketplaces such as Tmall from the Alibaba stable, product suppliers and manufacturers. Even if they go in for a float, there is high chance that their businesses would be undervalued by investors, said an expert from China Merchants Securities Co Ltd, a brokerage based in Beijing, who sought anonymity.
"Moreover, some of the online merchants may have exploited some loopholes in law to secure better business performance, such as faking their sales records. Some may have avoided paying tax. But going public requires them to open their tax books. If they didn't do it right, their dirty laundry would be seen by public," said the expert.
Such high risks and hurdles, however, are not dampening the spirits of float-seeking online merchants. Ma Sanxin, deputy manager of nine-year-old Linshi Muye, an online furniture brand, said the firm has always adopted strict rules in its operations, and is now intent on going public in 2020.
"Some people choose the sneaky way to do business because a well-regulated company will drive up costs. But it's not the way we do business," Ma said.
"Linshi will be a 10-year-old company next year. We want to behave and act like a great company so that we can actually be one in future."
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