Alibaba Does The Tango

| About: Alibaba Group (BABA)


Alibaba, the gigantic Chinese e-commerce company, recently invested $215million in the mobile messaging app Tango.

The investment by Alibaba, prior to its upcoming US IPO, shows the company's potential capacity for competing with US tech giants, including Facebook, in the future.

With a 24% stake in Alibaba, Yahoo! stands to continually gain if Alibaba's grows.

Alibaba (ABABA), the gigantic Chinese e-commerce company, continues to affect ripples in the world of finance. Investors in the United States are looking forward to its much awaited initial public offering in New York (process beginning this month), and Yahoo's (NASDAQ:YHOO) shares in Alibaba have been the subject of many articles of late, highlighting how the stake could provided a needed (although perhaps temporary) boost to YHOO stock. An even newer development, however, is the news that Alibaba has recently invested in the messaging app Tango.

A New Leader in Mobile Messaging?

Tango has raised $280 million in venture financing, with $215 million coming from the Alibaba Group. This investment gives Alibaba a seat on Tango's board, along with a stake in the company. Alibaba's endorsement in Tango is a vote of confidence that the app has what it takes to compete with WhatsApp, the current market leader in free mobile messaging software, recently valued by Facebook (NASDAQ:FB) at a whopping $19billion. Currently, Tango has declined to talk about valuation; however, analysts believe that Alibaba's massive cash infusion now put the figure past $1 billion, considerably higher than its previous $300 million in its first round of financing in 2012.

Tango has 200 million registered users worldwide, with 70 million new users logging in every month. A quarter of its members are in the US, with remaining followers spread globally from Europe to Taiwan, Singapore, and the Middle East.

Similar to WhatsApp, Tango's software allows users to send free text and video message, as well as photographs, over mobile phones. Additionally, members populate its social network to connect with friends and to play games. This network resembles Facebook, including status updates.

Yahoo and the Alibaba IPO

While it is uncertain if Tango will contribute to Alibaba's income; the investment sends a clear message that Alibaba is expanding along the same lines as many other American tech giants, including Facebook-and could be a formidable competitor, particularly post-IPO.

Alibaba-For Yahoo, It's Like a Chance to Make a Comeback after Unexpected Reversals

Yahoo, who has a 24 percent share of Alibaba, has a lot to do with Tango's sudden good fortune. Jerry Yang, the co-founder of Yahoo, introduced Tango to Alibaba. The large stake Yahoo has in Alibaba has helped Yahoo pull itself up from the bootstraps once Google's more sophisticated search engine algorithms began to dominate Internet search, a competitive advantage that made it difficult for Yahoo to drive the same revenues from their core business of providing Internet search and offering advertisers a robust media.

Investors are now interested in Yahoo once more because of Yahoo's interest in Alibaba. They anticipate a windfall once Alibaba launches its IPO later on this year. Although the timing of the IPO is not yet known, US investors are thrilled that Alibaba has decided not to list its stock in Hong Kong, but instead to list it in the US exchange. The prevailing wisdom is that the initial public offering will occur within 6 months.

Yahoo's shares have almost doubled since 2013, a result of its significant stake in Alibaba, and the company is now valued at $39 billion. Although the Sunnyvale, California, company has hired Marissa Mayer as the CEO to engineer its comeback, Yahoo's current success is actually due to the strategic decisions made by her predecessors.

Here's the backstory: Jerry Yang together with Terry Semel, a former movie studio boss, recognized that Alibaba was the biggest thing to happen to the world of e-commerce. Then Carol Bartz, yet another ex-CEO, defended the fort in 2010 and 2011 when shareholders tried to pressure her to jettison Alibaba's shares.

This acquisition and defense of Alibaba shares buys Marissa Mayer a year or two to come up with Yahoo's next winning move. Investors are content to wait, realizing that Yahoo will earn billions of dollars when it sells 261.5 million shares in the upcoming Alibaba initial public offering. After this anticipated windfall, Yahoo will still retain 12 percent of Alibaba shares, and if the Chinese giant's continues its unprecedented growth rate, this will keep Yahoo well-funded.

Alibaba-For Investors, It's Like the Persian Fairy Tale Come True

In the Persian Fairy Tale, Alibaba, Aladdin finds a magic lamp that leads to incomprehensible riches. In real life, the Chinese company bearing that name has found its treasures in e-commerce. Valued at a colossal $130 billion, Alibaba is a synergy of Google, eBay, and PayPal. When it goes public later this year, investors hope to find their own pot of gold at the end of the IPO rainbow.

Disclosure: I am long YHOO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.