Economic Analysis: Alibaba Sets an IPO Price at $68

China’s eCommerce giant, Alibaba, which will be listed on the New York Stock Exchange (NYSE) under the ticker BABA  has set a price for its widely anticipated initial public offering (IPO), at $68 per share. This is the biggest IPO on any U.S. listed exchange in history. Investors are more than expected to push the price even higher when it opens for trading, later in the day when U.S. markets open.

The price is likely to create a lot of buzz and plenty of upside potential when the IPO launches. This price means the stock will sell at around 29 to 30 times earnings. This makes it a discount to some of its peers. We look at Amazon (AMZN: Nasdaq) whose forward earnings is at 355. This means BABA is an  IPO  bargain and investors should be happy to buy at this level. By setting its price at $68, Alibaba is showing that they are more than  committed to pulling off a successful stock listing today. They were careful not to be greedy and overprice the listing.

We had anticipated the pricing to have a top rage between $65 and $68. This is ahead of the market expected range of $60 to as high as $65. At the current IPO price of $68, Alibaba will raise $21.8 billion when it sells, its planned 320 million shares today. They also have an option to sell an addition 48 million shares. This is a compelling price. Their last financial report was impressive as they show 280 million daily, and active, buyers. They showed a profit of $2 billion and their operating margin was at an impressive 43 percent. We expect Alibaba, to eventually end up as a stock ,that is core , if not a major part within many large cap portfolios. Fund managers will be eyeing this IPO closely.

Analysts are rather bullish as they are expecting the IPO price to move up to $88 to $90 as it trades today. Some analysts, IG, are expecting to be over $90 when the market closes. As time moves on, over the next several weeks, fund managers will likely start bidding on BABA moving the price even higher. Fund managers have been waiting for an opportunity to add China’s e-commerce industry to their portfolios, and now they have that chance. Expect them to seize this opportunity.