The Biggest IPO Since Facebook Inc (FB)

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May 7, 2014 4:21pm NYSE:IPO

IPOIan Wyatt: Last night, one of the biggest Internet companies in the world filed for its Initial Public Offering. If you’re like most Americans, you’ve probably never heard of the company.


This isn’t your typical Internet startup. It wasn’t launched in Silicon Valley. And its investors aren’t well known venture capitalists.

Instead, it’s the dominant Chinese e-commerce firm known as Alibaba.

Alibaba is an online store that makes it easy for Chinese businesses to sell their products online. Think of it as a combination of Amazon (Nasdaq: AMZN) and eBay (Nasdaq: EBAY).

The Internet business is very saturated here in the U.S. And Internet stalwarts like Amazon are now celebrating their 20th anniversary.

But in China, it is still the early days of the Internet. Less than 50% of China’s population is on the Internet. That’s expected to grow by 28% over the next three years. The growing population of Chinese Internet users bodes well for the country’s top e-commerce firm.

Last year, Alibaba sold $248 billion of merchandise to 231 million active users. As a result, the company’s revenues grew 57%. Unlike other Internet stocks, Alibaba is extremely profitable. With net income of $2.8 billion, the company’s profit margins are an impressive 43%.

Those numbers mean little without context.

The Biggest IPO Since Facebook

So let’s compare Alibaba to Facebook (Nasdaq: FB). Over the same 9-month period, Facebook had revenues of $6.4 billion. Meanwhile, net income was $1.3 billion. With shares trading at $58, Facebook is valued at $150 billion.

So what is Alibaba worth? We can only estimate.

That’s because the company’s preliminary IPO prospectus is scant on these details. The SEC filing doesn’t share the size or price of the stock offering. And without this information, we’re forced to make some educated estimates.

But it’s reasonable to think that Alibaba is worth more than Facebook. After all, the company has double the profits.

Several Internet stock analysts estimate that Abibaba is worth more than $200 billion. And they expect that the stock offering will exceed the $16.4 billion Facebook IPO.

Alibaba stock will have lots to offer investors. First, there is the rapid revenue growth. Second, there are the big profit margins. And third, there is the large and growing market size. But until Alibaba shares more details on its IPO, it’s impossible to know whether the stock is a great investment.

We’ve written about Alibaba’s IPO in recent months. One of these articles – Profit from China’s Top Internet Stock –explains how to buy Alibaba shares before the company’s IPO.

In that article, we recommend buying shares of Yahoo! (Nasdaq: YHOO). That’s because Yahoo owns 22.6% of Alibaba.

At a $200 billion valuation, Yahoo’s stake in Alibaba would be worth $45.2 billion. That amount is a 20% premium to the current value of Yahoo’s entire business – including Yahoo.com, and its stakes in Alibaba and Yahoo! Japan.

The Abibaba IPO is a primary factor behind the 45% rise for Yahoo stock over the last year. That’s because investors are anxious to invest in China’s biggest Internet company. And that bullish outlook for Alibaba could send Yahoo stock higher in the months ahead, so you definitely don’t want to miss the biggest IPO of 2014.

This article is brought to you courtesy of Ian Wyatt from Wyatt Investment Research.


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