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International Investing – Alibaba

April 17, 2014

The world is a big place – there are over 190 countries and 7 billion people in the world, which really boggles the mind if you sit down and think about it. In addition to being an interesting intellectual exercise, this fact can also have broad implications for your investments and your financial future. It is easy to stay focused on U.S. firms, news, and events during the day-to-day grind, but it is always important to be aware of your surroundings – especially when it comes to your investments. With that in mind, this series of articles will focus on countries and investment opportunities outside the United States that you might not usually hear about.

As always, be sure to consult a financial services professional familiar with both the potential investment and your unique financial situation before embarking on any investment program.

Update: Alibaba reported earnings of $3.06 billion for the quarter ending December 31, which is an increase of 66%. Possibly more important than that, the Chinese e-commerce firm earns higher percentages of net income off of this revenue than either Apple or Facebook, and it generated a 110% increase in net income for the fiscal year. These profitability figures, as well as the pending IPO (which some think may be announced within the next several weeks), the marketplace has begun to focus significantly on this firm and its potential for future growth.

Questions that are beginning to be asked, and that might very well have substantial impacts on the marketplace are 1) After Alibaba goes public, what will happen to Yahoo’s stock price, and 2) What will Yahoo do with the funds raised from the Alibaba IPO (associated with the 24% ownership stake Yahoo owns in the firm)?

Alibaba

China is the world’s second largest economy, and has been among the fastest growing economies in the world over the last several decades. China has been in the news lately, generating headlines for several reasons – pollution, corruption crackdowns, and concerns over the slowing of the economy. There are, however, multiple opportunities for international investors to put capital to work in the Chinese economy. In this second segment on China, we will be discussing Chinese I.T. manufacturing.

Alibaba is arguably the most discussed privately held company in the world at this time, as speculation continues to swirl around the firm’s looming IPO – but how much do you really know about this firm? More to the point, have you even heard of it? Imagine a firm that is a combination of E-Bay, Amazon, Pay-pal, and Google – you are beginning to get an idea of just how large the firm is. Based on valuations and earnings that were released this week, Alibaba is valued at up to $200 billion, and while that is interesting from a purely academic point of view, what does that mean for you?

Yahoo, the internet search firm that has been the focus of much marketplace observation as Marissa Mayer attempts to turn around the fortunes of the firm, is an unlikely participant in the Alibaba saga. Yahoo actually owns a 24% equity stake in this Chinese search giant and has benefited from this ownership in terms of both revenue and income figures. Additionally, many are saying that Yahoo is being used as a tracking stock, or a proxy, for Alibaba. Since Alibaba is not publicly traded, Yahoo, at this point, is the best alternative for investors.

Interesting indeed.

Happy Reading!

Updated Links

http://www.foxbusiness.com/industries/2014/04/16/yahoo-shares-good-buy-as-alibaba-nears-ipo-analysts/

http://www.bloomberg.com/news/2014-04-15/alibaba-profit-grows-ahead-of-initial-public-offering.html

http://tech.fortune.cnn.com/2014/04/16/yahoo-reports-modest-earnings-but-alibaba-shines/

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http://blogs.barrons.com/techtraderdaily/2013/12/09/yahoo-alibaba-stake-now-worth-35b-says-rbc/
http://www.investopedia.com/stock-analysis/101113/yahoo-shareholders-fortunes-hinge-alibaba-ipo-yhoo-fb.aspx
http://www.alibaba.com/
http://www.zdnet.com/cn/alibaba-faces-challenges-in-us-e-commerce-bid-7000026236/

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