Alibaba's (BABA) long-awaited initial public offering is expected to price on Sept. 18 and trading set to begin the next day. The company recently raised its price to between $66 and $68 per American depository share (ADS) compared with its initial $60-$66. Perhaps learning lessons from Facebook's IPO, Alibaba's current pricing range strikes us as conservative, and we do not believe the valuation fully reflects the features that make the wide-moat Alibaba investment story unique. Based on 2.5 billion shares outstanding after the offering (assuming underwriter options have been exercised) and a discounted cash flow-derived equity value of $223 billion, we assign Alibaba a fair value estimate of $90 per ADS.

Nevertheless, we acknowledge that there are several geographic, regulatory, and corporate structure risks inherent to investing in Alibaba, which are reflected in our high uncertainty and poor stewardship ratings. As such, we believe the IPO is most appropriate for investors with higher risk tolerance looking to increase their exposure to China's emerging middle-class consumer base and its online commerce, mobile commerce, technology, and logistics industries.