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Alibaba IPO – 3 Ways The Company Is Hyping the Deal

These moves may also provide the benefit of long-term value


Even though the IPO market remains strong, there is still concern that the upcoming Alibaba IPO may not gin up much demand. Let’s face it, the company is much less known in the U.S. than other operators like Twitter (TWTR) and Facebook (FB).

alibaba ipo baba stockSo to deal with this, the company has been taking some actions to make the deal more attractive.

#1 – Crackdown on Fake Goods

Perhaps the biggest move to hype the Alibaba IPO, according to a post in The Wall Street Journal, is the crackdown on the selling of fake and unauthorized goods on its main online platforms, Tmall and Taobao.

The strategy is already getting results. Consider that it was likely the driving force behind Alibaba snagging the business of Burberry and Estée Lauder (EL). Another interesting development: Gucci, Yves Saint Laurent and other luxury retailers recently dropped a lawsuit for counterfeit goods and other alleged violations.

No doubt, the Alibaba IPO could gain a nice boost by getting cozy with top brands. They allow for higher-margin purchases as well as engendering a perception of quality, which should help spur demand. And, with the continued growth of affluence in China, there should be more interest in luxury brands.

Such factors should help to alleviate the reduction in sales from the gray market.

#2 – Alipay

But the company has also done something else that should be helpful by restructuring Alipay, which is the online payments system. For the most part, the company changed the terms of existing contracts to limit the liability for defaults while also increasing the payout of fees. There will also be no cap on the valuation of Alipay if it decides to go public. The stake is currently valued at nearly $10 billion.

It’s a nice win for BABA stock. Alipay has represented a nice slug of revenues, coming to $390 million in fiscal 2014. The growth potential is also huge, especially as Alibaba moves more aggressively with mobile.

#3 – Dealmaking

And speaking of mobile, Alibaba has been getting aggressive, particularly with dealmaking. To this end, it has purchased AutoNavi (a provider of digital map and navigation services) and invested in Tango (a messaging app).

In Wall Street parlance, pre-IPO moves are often derisively called “putting lipstick on the pig.” But with the Alibaba IPO, this is probably not the case. Let’s face it, transparent and cleaner marketplaces should generate more sales. What’s more, to remain competitive, Alibaba must make bold investments and acquisitions.

Now, these moves may not necessarily mean that the Alibaba IPO will be red-hot. If anything, it is tough to pull off mega deals — just look at what happened to Facebook. There’s no guarantee that BABA stock will soar when it debuts.

But for those investors who take a buy-and-hold approach, Alibaba’s actions should be encouraging.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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