Coming to America, Jack Ma Style

NEW YORK (TheStreet) -- Alibaba Group may have the biggest Web site business you never heard of but that will soon change. A common investor adage is "there are no coincidences on Wall Street" and Alibaba may turn into a good example. I'll explain why in a moment, but let's examine the participants.

You may not know about Alibaba's Web site Taobao.com or Alibaba.com unless you're involved in international commerce; however, Taobao is ranked in the top 10 sites on the web. Every day, legions more enter Taobao versus eBay ( EBAY), Microsoft's Bing ( MSFT), or Twitter.

Clearly, Alibaba is a leading player in the online world. So much so that gross merchandise sales through Alibaba's web portals are greater than eBay or Amazon ( AMZN), and by some measurements, above and beyond eBay and Amazon combined.

Jack Ma, Alibaba's lead founder, unexpectedly announced in January that he was stepping down as CEO. In May, Jonathan Lu took the helm, and Ma currently serves as executive chairman. This is where the story becomes intriguing.

At 48 years old, Jack Ma's self-made reported net worth is over a $3 billion. Ma is obviously a get-it-done kind of leader in the prime of his life.

Ma had the perseverance to gain entry into the Hangzhou Teacher's Institute after failing the entrance exam at least two times. In 1995, Ma founded China Yellowpages, one of the first Chinese Internet-based companies, and in 1999 he founded Alibaba.

In 2005, Ma convinced Yahoo! ( YHOO) to invest $1 billion into his company (I recently wrote why that investment is paying off for Yahoo!).

Today, Alibaba is the number one e-commerce site in China and the world based on total merchandise sold. Analysts' estimates for Alibaba start near $50 billion and move up -- not bad for a man who took more than one try to get into English school. Don't think for a moment that Ma is about to retire and fade into the sunset.

In February, Ma was reportedly spending time in Silicon Valley seeking potential partnerships. Meanwhile, back at the ranch, Amazon's shareholders don't seem to have received the memo that Jack Ma is in town.

If they knew what a perfect storm is brewing on the horizon, maybe they wouldn't bid Amazon's stock to almost $300. At $300 a share, Amazon has a forward earnings multiple of over a 100 by some estimates. The sky-high, oxygen-tank-requiring earnings multiple is based primarily on the view revenue and earnings will continue growing. That belief could shatter immediately upon the entry of an old, well-established market leading participant that is new to the North American market.

Remember, not only is Alibaba the leader in e-commerce in China, it is also the place from which many sellers on Amazon and eBay already source their products. It's a small step for existing American online retailers to move from Alibaba sourcing to listing products on "Alibaba U.S.A." This becomes even more apparent when you consider Alibaba charges customers less than Amazon or eBay.

I bet Alibaba is finalizing details (if it hasn't already) on how existing wholesale buyers become retail sellers with the push of a button. Alibaba already has everything in place mechanically to make it happen.

Alibaba has a payment processor similar to PayPal and Amazon Payments called Alipay. Alipay claims more active customers than PayPal and Amazon combined.

For Yahoo!, it's a mixed bag. Alibaba's entry into North America represents increased competition, but since Yahoo! owns about 20% of Alibaba, Yahoo! shares could double in value. Yahoo!'s market cap based on Tuesday's close is about $29 billion. If Alibaba IPOs and successfully establishes a leading presence in North America, investors may value the Chinese company at $100 billion or more.

The prognosis for Amazon upon an Alibaba entry isn't quite as ameliorative. If investors no longer believe Amazon will continue growing rapidly, the shares may trade at a fraction of the current price.

eBay trades at a forward earnings multiple of 17, Apple ( AAPL) at 10 and Cisco Systems ( CSCO) near 12. If you assign a forward earnings multiple of 20 to Amazon, the shares should trade near $65.

Of course, for Amazon to trade near $65 after Alibaba enters the market, you have to believe Amazon will continue trading at a higher multiple than the other companies. If Amazon is losing money and marketshare, $65 may turn into little more than wishful thinking by investors remembering days gone by.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Robert Weinstein currently blogs, mentors traders, and writes several weekly columns in Rocco Pendola's Option Investing newsletter from his home in northern Wisconsin. Robert tends to focus on the psychological importance of goals, risk mitigation, emotion, and relatively short term market exposure. With nearly 30 years of studying and investing experience, Robert has experienced the many ups and downs in the financial markets and uses the knowledge gained to maintain balance. Robert believes the best way to make money investing is to avoid losing it. The best way to avoid losing is to know what emotional traps lay in the path of investors and learning how to avoid them. Robert is a voracious reader of financial related books often completing more than one book a week while not trading or writing. Robert contributes to his blog at paid2trade.com on a regular basis with an emphasis on studying behavior finance.


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