What will the Alibaba IPO mean for it’s original investor, Yahoo! Yahoo invested 1 Billion dollars in 2005 for a 40% stake in Alibaba. After pulling out $7.6Billion in 2013, they still have a 23% stake in the company that will be valued from $100 Billion to 200 Billion. Yahoo is about to get a huge cash infusion.
Alibaba is the Chinese E-commerce site. They are to China what Amazon is to the United States but with a distinct difference that they are the exclusive middlemen to a purchase between a buyer and a seller. That leaves Alibaba in the advantageous position of not having to inventory product. Alibaba is a conglomerate of businesses consisting of their main Alibaba brand that links business to business transactions and it’s consumer to consumer business portal called Taobao that functions similarly to Ebay and offers over 1 billion products for sale by over 7 million unique sellers at any given time. They also own Alipay which is the Chinese Paypal and has 300million users and controls half of the market. They also own Tmall, Juhuasuan, e Tao, Ali Express, Ali Cloud Computing, ChinaVision Media Group, Laiwang, Youku Tudou and US shopping site 11 Main. All develop different aspects of the internet like social networking, instant messaging, video sharing and archiving, and cloud storage to be brief.
Alibaba files for their Initial Public Offering (IPO)
In April 2014, Alibaba filed the paperwork disclosing their future public offering. It was a placeholder filing for only $1 billion dollar but the consensus opinion is that in August when the IPO happens the company valuation should be in the $150-$200 Billion ballpark. To put this in perspective, Facebook IPO had the company selling shares at $38 per share for a valuation of $104 Billion, so the Chinese E-commerce company IPO will dwarf that by the factor of two possibly.
What does this mean to it’s original investors.
Two companies were the original venture capitalist stake horse for Alibaba in 2005. One was Yahoo! And the other is Japan’s Softbank with a 36% share. Both publicly traded companies. Yahoo! Invested $1 Billion dollars in 2005 for 40% of the company. It currently has a 22.6% after selling stock back to Alibaba for $7.8 Billion in cash in September of 2003. Since the IPO filing disclosed that Yahoo! will be required to sell 40% of it’s outstanding shares for the IPO, Yahoo! will in turn get a cash infusion between $24 and $44 BILLION Dollars depending on valuation An interesting observation is that at a current price of $33 a share for YHOO, the stock valuation in Alibaba may be greater than the total valuation of Yahoo! As a whole. Yahoo current valuation is at $33.8Billion dollars
What will Yahoo do with the money?
In my opinion, Yahoo CEO Marissa Mayer has done an amazing job so far She has acquired 37 companies in the two years since becoming CEO. She has hired Katie Couric from Television to be the Yahoo Spokesperson and hired the New York Times Tech editor, David Pogue to start a digital tech magazine. Her strategy focusing on smaller business acquisitions to introduce a new customer to Yahoo! and integrating new products and services into the business model takes time to evaluate it’s success but is a logical move to strengthen it’s core business and compete with Google and Facebook . The coup de grace is the acquisitions of major companies with high profiles on the internet like Tumblr, Snip IT, and Wander. These acquisitions when looked at as an overview fill some of the niches that Yahoo needed in the mobile, social networking, instant messaging and video necessities of the web. I foresee a major purchase by Yahoo before the 2014 calendar year ends that will bring all 37 of these acquisitions to a pinnacle of usefulness through integration.
How to capitalize on the Alibaba IPO
Buy either Yahoo or Softbank and hope for a higher valuation. Yahoo is on a dip on their high price of $41 in January 2014 and closing today under $34. TheStreet has given it a B rating and a BUY determination. Soft Bank on the Tokyo Stock Market closed at $74.75 with a yearly high of $88. Softbank has announced that it has plans to hold on to 30% of it’s shares after the IPO so they are obviously bullish on the long-term future growth and business model of Alibaba. At the end of May 2014, Softbank stock slipped below $70 and I feel that is an extremely profitable target price to buy. Alibaba is a giant of a company with huge potential and little concrete competition with a huge head start and now a cash infusion. Old expression, “the rich get richer.” This is as true a statement as you can make concerning the longtime potential of Alibaba as an investment vehicle for outstanding performance and long term growth in the largest business and consumer market in the world. You can take advantage now by buying shares of Yahoo! And Softbank.
Sources: NBC News, The Washington Post, The Wall Street Journal, Reuters, Forbes, IBN Live, TheStreet, Market Watch
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