Investors Say Alibaba IPO Filing Leaves Many Questions Unanswered

China's Internet crown jewel Alibaba filed for an initial public offering in the U.S. The WSJ's Yun-Hee Kim speaks with China Market Research Group Analyst Benjamin Cavender about investment risks and upcoming challenges.

As Alibaba Group Holding Ltd. prepares for what might be one of the biggest initial public offerings in history, it faces the challenge of convincing investors it will be a good buy.

Some may need more prodding.

A number of investors and analysts said Wednesday that the more than 2,000 pages the Chinese e-commerce giant filed Tuesday leave many important questions unanswered. They include the individual performance of the major e-commerce platforms that make up the bulk of its revenue, details of the business of electronic-payment affiliate Alipay, its strategy for a string of pricey recent acquisitions and plans for improving the way it delivers packages to Chinese customers.

Many investors are eagerly anticipating the offering because Alibaba holds an 80% share in the promising Chinese e-commerce market. The financial results disclosed Tuesday showed a fast-growing company with fat profit margins.

Still, the offering comes only a year after U.S.-traded Chinese Internet stocks recovered from a long slump prompted by a string of accounting scandals and worries about adequate disclosure.

"I think there are a lot of holes that haven't been filled," Forrester analyst Kelland Willis said of the filing. "People in the West have suspicions about the way Chinese companies are operating, and they're going to want to know specific numbers and details about Alibaba's books."

Alibaba's IPO filing raises an assortment of questions, not the least of which is transparency. James Gellert, Rapid Ratings president and CEO, joins MoneyBeat. Photo: Getty Images.

Alibaba has time to explain more. The e-commerce giant, which valued itself at $109 billion in April and could fetch a valuation as high as $250 billion, is set to launch a long series of meetings with investors ahead of the listing, expected late in the summer, according to people familiar with the matter. The company is also likely to file amendments to its initial filing, those people say.

Though skepticism has abated since last year, many U.S.-listed Chinese companies still face worries among investors about transparency. The U.S. Securities and Exchange Commission has raised questions about the accounting of more than 130 such companies in recent years. 

The Chinese affiliates of the Big Four accounting firms are appealing a U.S. court ruling that suspended them from auditing U.S.-traded clients for six months. The ruling was part of a broader dispute between Washington and Beijing about U.S. regulators' access to documents related to Chinese audit clients.

Alibaba's structure also raises the bar on disclosure, some investors say. Though company founder Jack Ma owns fewer shares than major shareholders SoftBank Corp. 9984.TO -4.77% or Yahoo Inc., YHOO -6.25% he and a group of 28 partners can nominate a majority of directors. The filing doesn't name the partners, who it said are members of the management of Alibaba or related companies.

Company executives also control Alipay, which the firm describes as important to its operations, but Alibaba itself doesn't own a stake. The filing didn't disclose Alipay's financial results.

The filing said the nomination system is designed to preserve "the culture shaped by [Alibaba] founders while at the same time accounting for the fact that founders will inevitably retire from the company."

The scant details raise transparency concerns because Alibaba's structure "still concentrates power into a few hands," said Tony Hsu, a Shanghai-based portfolio manager for U.S. hedge fund Dalton Investments. He said he likes Alibaba's long-term prospects, but added, "it's a little surprising for a business of this scale not to provide more granular data."

Alibaba's main businesses are its Chinese online shopping sites, Taobao and Tmall. But the company didn't break out individual performance figures for the two, instead lumping them with a third, smaller platform in a business category it calls "China commerce" that makes up more than four-fifths of its revenue. For the nine months ended Dec. 31, the combined business posted revenue of 35.17 billion yuan ($5.64 billion), up 60% from the year-earlier period.