Will Alibaba (BABA) Use Proceeds from IPO to Buy Yahoo (YHOO)?

In an interview with Bloomberg’s Emily Chang and Cory Johnson, GGV Capital Managing Partner and person responsible for connecting Jack Ma to Jerry Yang leading to the landmark transaction between Yahoo! and Alibaba, Hans Tung said Alibaba is a ‘very focused’ company and expects them to focus more on emerging areas such a digital goods as in gaming or in financial services, logistics, search or cross-border commerce.

On how the partnership came to be between Alibaba and Yahoo!:

“It’s a great question. GGV become investor in Alibaba (BABA) back in 2003, and in 2005 played a role in connecting Jack and Jerry. As a matter of fact, I’m on the board of (inaudible), which was a very – has been a very active organization facilitating cross-border activities between US and China. And (inaudible) and GGV had a CEO summit back in 2005 and then that’s when Jack and Jerry met up with each other and had a long conversation, heart to heart talks, and decided that it makes sense for the two to team up. And one plus one equals bigger than two in China. And back then the valuation for Alibaba was $5 billion for the entire company. In fact, Jack took a lower offer in order to have control of the company back in 2005. And today we’re looking at possibly a $165 billion market cap company. That’s amazing growth in the past nine years.”

On how Jack Ma and Jerry Yang initially worked together:

“That’s another good question. Those two had a personality that had – they have common grounds. They also are complementary to each other. Jack and Jerry both are very strategic, and Jack has the cunningness to think ahead and map ways to get there. And Jerry obviously sees the value of what Jack is doing and as a product manager knows that for a market like China which is very localized, you need to have local stores managing it and coming up with services that tailor to the needs of local consumers. I don’t think Jerry gets enough credit for making that deal. In the history of any US company investing in China or doing operations in China, Yahoo’s investment in Alibaba has by far been the most successful.”

On whether Alibaba is doing business differently than Yahoo! or Google:

“I think Yahoo (YHOO) and Google (GOOGL) and other companies in the US are quite focused in areas they’re in, but in China because it’s such a – such a big land grab opportunity, every company seems to want to do everything. So for Jack it’s not just going to be enough for ecommerce, but also social networking, also financial services, and also search. And so the ambition of the Chinese internet giants has been more in the cases that I have seen. And their ambition is not going to be limited only to China. I think over the next 10 years globalization will be a huge thing coming out of the Chinese internet giants.”

On what he expects Jack Ma to do with the money that they make on this IPO:

“I think Alibaba with that kind of cash on its balance sheet has a plethora of choices. You look at what they’ve done the last 18 months. It’s been quite interesting. Most people will argue that it’s not focused. I disagree. I think they have a plan and they realize that Alibaba could be much bigger outside of China than it is inside China. That’s hard to imagine, but right now in China Alibaba’s primarily known as an ecommerce company with financial services upside. But outside of China, it could be any combination of by doing – by doing search or (inaudible) social networking and a variety of other businesses. You look at the rest of the world. Only US and China have the complete internet ecosystem that has the ability to expand beyond the home boundaries to tackle other opportunities outside of these markets.”

On whether Alibaba will buy Yahoo!:

“I think Ali will have its choices of things to do and it will be focusing more on emerging areas, whether that’s in digital goods as in gaming or whether it’s in financial services or logistics or cross-border commerce or even search. I think they have a lot of choices ahead.”

On whether Alibaba is a focused company:

“I think they’re very strategic. With the cash they have, they can afford to make some mistakes. My experience of being in VC is you – you should worry less about your losses and focus on the – the possible up gains you can get. When I went to China in 2005, Tencent was a $3 billion or $4 billion market cap company. Now it’s $180 billion. Baidu was a $4 billion or $5 billion company. Now it’s $160 billion, $170 billion. The kind of growth that you’ve seen in China is just the beginning. I think the rest of the world over the next 10 years will present even bigger growth opportunities. So Alibaba can afford to make some mistakes.”

“I think for an American investor, it’s more comforting to know exactly what a company is going to do. But one thing I learned being in the venture business is that no matter how smart investors are, it really comes down to the management to make things happen. They’re the one that can make magic. So it’s – you buy stock in Alibaba tomorrow. You’re betting on that team, the partnership that they have to be able to continue to innovate over the next 10 years. And I think they are capable of doing that.”

Video for viewing here.

Bloomberg Television

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