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Video / 01 July 2014 at 9:31 GMT

Alibaba IPO: the Chinese whispers get louder

Peter Garnry
Despite all the Chinese whispers about the upcoming Alibaba IPO, we won’t know the exact price per share until the eve of the launch due on August the 8th, a lucky number in China, however we do have recent figures from the usually secretive company which shed some light on what the IPO price might be. Saxo Bank's Head of Equity Strategy, Peter Garnry, has been analysing the most up to date earnings.
The most recent financial results for Alibaba show a massive USD 7.3 Billion in revenue and a year on year growth of fifty five percent; the sort of turbo charged numbers which have investors drooling. Alibaba’s EBITDA margin is sixty eight percent versus fifty one percent at Facebook, for example, a key indication of just how rich the Chinese company is. The number of active users on Alibaba’s ecommerce platforms has risen to two hundred and fifty five million from one hundred and seventy two million a year ago, that’s an important positive development which can only strengthen demand for the shares when they go on sale. 

Alibaba does face strong competition from rival Tencent, the tech company which dominates the instant messaging market in China. Tencent shares have risen around twenty percent this year. Also worth noting is Yahoo's twenty four percent stake in Alibaba, Yahoo stock holders stand to auromatically benefit from Alibaba's launch.
peter peter
Peter, information about Yahoo is very interesting. yahoo has market cap USD 35.37B, how much actually contributed value of 24% share in Alibaba to valuation of yahoo? Could you help me with it? Is not there an arbitrage?
Peter Garnry Peter Garnry
It is worth noting that Alibaba bought around 20% of Yahoo's stake before the IPO at an approximate valuation of around USD 150-160 billion, which we is good yardstick for IPO valuation.
Peter Garnry Peter Garnry
According to the latest amendment to the F-1 filing, Yahoo owns 22.5% of Alibaba which at a valuation of USD 150 billion equals a stake worth USD 33.75 billion which is very close to the current market cap of USD 35.7 billion. So basically getting Yahoo for free if you buy the shares. However, normally such a big stake carries a discount to the market value.
peter peter
Thank you for the information. I just wanted to check what I fould :). It is obviously an arbitrage = getting yahoo for free (more or less).
peter peter
and yahoo has some negative net debt which further improves valuation....
Peter Garnry Peter Garnry
Yes, because 95-98% of Yahoo's valuation is driven by Alibaba, trading Yahoo is actually an almost pure 1:1 Alibaba trade before the IPO. We cover that more in detail tomorrow.
peter peter
looking forward to your coverage because I like the idea paying nothing for yahoo business.
Peter Garnry Peter Garnry
The idea will be covered in a video first and I will put out a note later today explanation the math behind it.
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