Yesterday, Alibaba [NYSE:BABA] officially began trading on the New York Stock Exchange.
The initial share price was going to be US$66–68. Based on this, Alibaba may have raised almost US$22 billion. This makes it largest public offering in US history.
Facebook made its market entrance at US$38 per share. It gained roughly US$16 billion in capital along the way.
In 15 years, Alibaba has become China’s leading e-commerce company. But I’ll bet most people outside of China barely know what Alibaba does.
The company started out with an online business, Alibaba.com, in 1999. The idea was to connect Chinese supplies with buyers — of anything. A few years later, it created other online businesses, Tmail and Taobao.
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It’s China’s largest retailer. And 80% of online sales in China come from an Alibaba owned business.
Alibaba is like eBay, Amazon and Google in one company. They act as a middleman for people and businesses to sell products — like eBay and Amazon. Similar to Google, they also make money from advertising as well.
Alibaba is a tech giant of China. And given that it’s the largest public listing in US history, there’s every chance it will be the next technology megastar in America.
However, there is a local Chinese service that could slow down Alibaba. It’s called WeChat, owned by TenCent [HK:0700].
WeChat began its app life as a micro message platform in 2011. From this simple start, it grew to include photo, video and location sharing. You can connect with people nearby using Bluetooth. What started as a simple communication tool grew into a social network.
It has 438 million monthly active members inside China alone. And it’s estimated there’s another 150 million outside China using WeChat.
Now consider this. WhatsApp has a global base of 465 million monthly active uses. And China has twice the number of internet users compared to the US. This could mean WeChat’s growth in China isn’t over yet.
WeChat has made progress where Facebook, Google and Apple haven’t. For the social networks, China’s censoring laws have been a major hurdle gaining a large user base. For Apple, it’s the payment system in China that’s a problem.
See, to buy a product from Apple, you must have an Apple account linked to a credit card. Many Chinese consumers favour using the national banking card system over credit cards. Because of this, WeChat allows users to link either a credit card or the national card. This way, Chinese consumers can still buy Apple apps and use a payment method they like.
Most of Apple’s App Store revenue from China is thanks to WeChat.
As the hype grew around Alibaba’s IPO, no one cared to watch what WeChat was doing. Perhaps you should, as Forbes magazine recently declared WeChat was one’s of the world’s most powerful apps.
Perhaps the true brilliance behind WeChat is how it became a moneymaker. WeChat is still a free app. But it slowly added e-commerce into the app to make it profitable. The first in-app purchases were ‘Hello Kitty’ digital sticker packs. This was followed by in-game purchases.
Other ways of trading quickly followed. In January this year, WeChat users could book and pay for a taxi using the app. 21 million rides have been taken since the launch. People can buy a coffee though the app. Soon they’ll be able to pay for petrol using WeChat, as TenCent recently acquired a stake in the state owned oil company Sinopec.
Next up, is shopping in general. TenCent has partnered with Chinese ecommerce company JD.com. The combination of these two businesses should soon see members of WeChat able to buy anything through the app.
This will challenge Alibaba’s ewallet AliPay. Currently AliPay is China’s top method and has 100 million users.
But WeChat is in more people’s pockets, which instantly gives WeChat an edge over Alibaba.
Don’t get me wrong, Alibaba is a company brimming with idea’s and is worth watching. But don’t ignore the growing consumer power behind WeChat. WeChat could have more influence over the Chinese market.
Shae Smith+
Editor, Money Weekend
The post Ignore the Alibaba IPO – WeChat is Worth Watching appeared first on Stock Market News, Finance and Investments | Money Morning Australia.
