by Hilary Kramer | September 19, 2013 7:00 am
IPO traders have more to be excited about right now than they have in over a year. As you probably heard, Twitter has filed paperwork to go public – announced in a tweet, of course! No time frame has been released, and both the New York Stock Exchange and Nasdaq are competing to list the stock.
And here’s another fascinating – and likely bigger – one you may not have heard as much about: Hong Kong’s Alibaba Group is flirting with the idea of moving its initial public offering (IPO) to New York if local regulators won’t bend their rules. This isn’t just another potentially huge deal in and of itself; it could shake loose a lot of smaller offerings that have been stuck in the pipeline for years.
The latest developments indicate that Alibaba – which runs as much as 97% of the ecommerce business across China! – will list its shares to a U.S. exchange unless Hong Kong lets management adopt a Facebook-like dual share class structure and appoint the majority of directors internally. For minority shareholders, that’s not necessarily a great thing because it gives the inner circle all the cards.
But as far as the IPO market goes, the $60 billion heft being batted around for this company would dwarf everything we’ve seen since Facebook (FB) lurched onto the Nasdaq in May 2012. A more graceful debut than Facebook’s has the potential to both push billions of dollars into a new high-tech behemoth and unleash a new wave of trader enthusiasm for technology offerings in particular.
Even without formal U.S. IPO filings to scrutinize, we know Alibaba is an extremely well-run enterprise worthy of the buzz and probably a place in any global technology portfolio. Yahoo (YHOO) owns 24% of the company and reports that Alibaba is now generating $1.4 billion in quarterly revenue at an annualized growth rate well above 70%, while a rich 51% operating margin translates into earnings that are almost tripling on a year-over-year basis.
Multiply those fundamentals by a conservative valuation of around 30X – which Facebook never dropped to even at its weakest – and “the eBay of China” could easily be worth more than eBay (EBAY) itself when and if Alibaba shares actually list here. Twitter may “only” be worth about $10 billion by the time it finally launches. And with IPO flow ramping up at its fastest since 2007, we could get some more exciting opportunities in the near future.
Once example: I recently recommended to my Inner Circle members a company not many people had heard about that went public quietly earlier this year. It’s up 20% in the last two months while the S&P 500 is flat in that time.
And there’s potentially a lot more where that came from. I’ve been watching 12 stocks coming to market in the next few weeks. They’re relatively obscure companies that together expect to raise barely $1.2 billion. Very few will get the headline play that Alibaba and Twitter are getting now, but there’s transformative potential here if you know where to look: game-changing trends like big data, information security and revolutionary drugs, along with world-class investment bank backing and triple-digit growth rates.
New and exotic ticker symbols like PEGI and EVOK and FATE are moving toward the market even as we speak. While these aren’t going to be the blockbuster IPOs that dominate CNBC coverage for days on end, their impact on investor portfolios has the potential to be anything but subtle. I look forward to following them closely and taking advantage of opportunities as we get them.
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