Alibaba’s Valuation is Out: What it Means for ETFs

More fuel has had been added to the already scalding hot anticipatory fire that is the Alibaba initial public offering as the Chinese e-commerce will reportedly offer its shares at $60 to $66, valuing the company at about $160 billion at the midpoint of that range.

“It isn’t unusual for companies seeking to go public to set an initial price range that proves to be below where the offering eventually prices,” reports the Wall Street Journal, which broke the news of the Alibaba offering range.

Alibaba is expected to commence its IPO roadshow in New York on Monday with an eye toward its New York Stock Exchange listing under the ticker “BABA” in reportedly less than two weeks.

What is important for ETF to investors to remember is that Alibaba’s $160 billion valuation, roughly the current market capitalization of Amazon (NasdaqGS: AMZN), does not directly equate to a market value of $160 billion. That is critical because some of the ETFs that will quickly add the stock, including the KraneShares CSI China Internet Fund (NasdaqGM: KWEB) and the KraneShares CSI China Five Year Plan ETF (NYSEArca: KFYP), are cap-weighted funds. [China Internet ETF Tops $100M in AUM]

What will determine Alibaba’s market value is the number of shares it floats in the IPO along with subsequent market appreciation or, gasp, downside. A stocks market value is determined by multiplying current share price by shares outstanding.

KraneShares Managing Director Brendan Ahern notes that Alibaba’s IPO will be small in terms of share count and that could be intentional on the company’s part.