Alibaba: The Breakout IPO Of 2014

Sep. 3.14 | About: Alibaba Group (BABA)

Summary

Alibaba is the largest ecommerce site in China.

Alibaba is expected to raise up to $20 billion on its first day of trading.

Although not well-known in the United States, Alibaba is China's largest ecommerce site and does everything that PayPal, eBay and Amazon.com do, but is twice the size.

As opposed to the Facebook IPO, Alibaba's value is expected to continue rising.

If there is one piece of advice to take this year, it is to pick up Alibaba stock.

According to The Wall Street Journal, Alibaba has its release scheduled for the week of September 8. China's internet giant could begin trading as soon as September 18 or 19. Alibaba is expected to raise up to $20 billion, compared to Facebook's IPO, which raised $16 billion in 2012.

Alibaba is not well-known in the United States, but it is massive in China, where it dominates the payment services, digital media, laptop programs and e-commerce. Think of it like PayPal, eBay (NASDAQ:EBAY) and Amazon.com (NASDAQ:AMZN) all rolled into one company. It is the world's largest e-commerce company, and had sales of almost $250 billion last year. Two of its most popular sites, Taobao and Tmall, account for almost 80 percent of China's online retail sales.

In 2013, Alibaba had 231 million active buyers. From March 2012 to March 2013, the company generated $5.6 billion in revenue. From March 2013 to December 2013, sales increased to $6.5 billion. Even without the fourth-quarter earnings (January to March 2014), sales have grown rapidly.

Alibaba is expanding into the international market, not only for its buyers, but is also by opening up markets in Russia, Eastern Europe and South America to its sellers.

Alibaba could be worth up to $200 billion, almost twice the worth of Amazon and eBay combined. Analysts are predicting that the profits for this company will only increase after the IPO.

There is, however, a way to get in on the investment rush prior to the IPO. Two companies, Yahoo (NASDAQ:YHOO) and SoftBank (OTCPK:SFTBF), currently own approximately 61 percent of the company. When the IPO is released, the prices of these stocks will also increase. Yahoo, which has a $31 billion valuation of the company, could see its shares double on the first day of trading. Its investment could end up being worth $49 billion. Yahoo could sell 10% of its shares for $13 billion, with its remaining shares doubling in value to $36 billion.

SoftBank stands to make even more money. It has a much larger stake in Alibaba, and its share could be worth as much as $83 billion after the first day.

In the past year, both of these companies have seen a marked increase in their value, which can be linked directly to the shares they own in Alibaba. If you can't wait for the IPO, the best option you have to make money off of this arrangement is to buy shares in Yahoo or SoftBank. SoftBank would be considered the better investment for two reasons: it owns more shares of Alibaba, and it is more diverse than Yahoo. Although it owns more of Alibaba, it is a smaller percentage of the total business than Yahoo.

Although there is no such thing as a "sure bet" in finance, the Alibaba IPO has all the marks of a stellar IPO with continued and strong trading for the foreseeable future. If you only buy one stock this year, Alibaba should be it. The hardest part will be waiting for the IPO.

Most investors won't be able to buy Alibaba's stock before the IPO. To buy it on the day it comes out, you need to have an online trading account already set up and have your investment capital already in it. If you can't wait for the release, buy SoftBank or Yahoo. Their value will increase as soon as the IPO occurs.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.