Alibaba: How the IPO Will Affect YHOO Share Price

Alibaba Group Holding Ltd’s [IPO-BABA.N], China’s biggest e-commerce operator, is scheduled to go public sometime in early September. The company accounts for over 80% of all online retail in China–a staggering market share that has investors excited.  Alibaba issued stock-based compensation worth $59 a share, which indicates a market value of $138 billion based on 2.34 billion shares outstanding as of June 30, according to the Aug. 27 filing. The share count includes preferred and unvested restricted shares. The company’s mobile platform is state-of-the art, with mobile transactions growing to 32.8%  from 27.4%. Its Taobao and Tmall platforms are innovating forces in the B2C and C2C sectors , as opposed to simply linking buyers-to-sellers in the traditional fashion. With an operating income over $1.1 billion last quarter, Alibaba brings in 42% more than both eBay and Amazon combined. Net income also tripled last quarter, mounting to $1.99 billion.

These numbers have investors excited, and with a 22.5% stake in the company, Yahoo (YHOO) has performed well since acquiring stake in Alibaba, up over 100% in the past few years. With the likely high demand for Alibaba shares, investors who miss the opportunity for direct exposure may opt to buy into YHOO as an Alibaba play. The internet search engine might see a pop in share price as the result, but some investors are exercising caution. Yahoo’s foreign presence in China presents political challenges in the communist state, which could jeopardize Alibaba’s ability to conduct business in a highly-censored political environment. Either way, we believe that the IPO will be a positive catalyst, moving YHOO higher in the near future.