Alibaba (NYSE:BABA) shares retreated Monday, after the Chinese online retailer broke records with its IPO last week, which now ranks as the world's biggest in history at $25 billion.
The company and some of its shareholders sold additional shares, with Alibaba agreeing to sell 26.1 million more shares, while Yahoo (NASDAQ:YHOO) agreed to sell 18.3 million, netting them an extra $1.8 billion and $1.2 billion, respectively.
Shares of Yahoo fell more than 4.8 percent to US$38.93 after Bank of America Merrill Lynch cut its rating on the company's stock to neutral. Alibaba declined 4 percent to US$90.17.
Initially, Alibaba and its shareholders last week sold 320.1 million shares, equivalent to about 13 percent of the company's capital, for $68 each, raising $21.8 billion.
The Hangzhou, China-based company had initially expected its shares to sell for $60 to $66 in the IPO. But earlier last week, following strong investor demand, it raised the high-end of its expected price range to $68.
Alibaba, essentially China's version of e-Bay, was co-founded in 1999 by Ma, a former English teacher who has become one of China’s best-known businessmen. The company started as an online marketplace for businesses to sell products to one another but quickly expanded into consumer sales and online payments.
Alibaba is now a global hub for selling everything from electronic parts to engines to stuffed animals. It also has a growing portfolio of U.S. investments including ShopRunner, an online delivery service, and ride-hailing app Lyft.
Alibaba’s profits also make it a standout among technology IPOs. Twitter Inc. raised more than $2 billion last year, and Chinese rival JD.Com Inc., which has achieved a $40 billion valuation, raised about $2 billion in May -- both without any annual earnings.
Alibaba, by comparison, turns about half of its sales into income.
Its revenue surged 46 percent in the April to June quarter on strong gains in its mobile business, with net income attributable to its shareholders nearly tripling to $1.99 billion, or 84 cents a share. Investors are hoping the company can continue this growth.
Ma, who founded the company in a one-bedroom apartment, has been vaulted into the ranks of tech billionaires like Bill Gates and Jeff Bezos. The deal has also made millionaires out of a substantial chunk of the company's managers, software engineers and other staff.
In addition, it allows cornerstone Alibaba investors like Japan's Softbank and Yahoo (NASDAQ:YHOO) to profit from their foresight in getting in on the ground floor at the e-commerce giant. Softbank is not selling its stake for now and will be left with a 32 percent shareholding, making it the largest single shareholder.