Just How Big Will Alibaba Be?

NEW YORK (TheStreet) -- Alibaba's IPO roadshow kicked off Monday with a bang.

There were huge crowds in attendance at the Waldorf Astoria hotel in New York to hear the pitch and most came away from the meetings raving about the scale and scope of Alibaba's e-commerce businesses.

The excitement of investors spilled out into comments they made to members of the media afterward in interviews.

It was also reflected in Yahoo's (YHOO) stock price Monday, which jumped almost 6% on about five times the average daily volume. That's one of the biggest percentage moves up the stock has had during the past three years. Yahoo owns a 22.4% stake in Alibaba, a Chinese Internet company that is scheduled to go public in the U.S. next week.

Why are so many people getting excited now about Alibaba? Hasn't the Alibaba story been known for a while and shouldn't it be priced into Yahoo's stock already?

I think there are many reasons why Alibaba's story is attracting attention as its roadshow kicks off:

  • The scale of Alibaba's success in China is huge. At any given time, 60% of the packages being delivered in China are the result of an Alibaba property-related e-commerce transaction. Its Taobao consumer-to-consumer Web site has close to 100% market share in China.
  • Even though all the information about Alibaba has been disclosed in its F-1 filing, the reality is that lots of investors haven't read it and wait to hear it from the horse's mouth.
  • This company is still growing, and we are in an environment where many managers are seeking a large-cap stock that's still growing decently. They have that in Alibaba.
  • The potential for international growth is enticing.
  • People are expecting that Alibaba's pricing is going up. When Twitter (TWTR) started its roadshow, the initial price talk by bankers was in the low teens. By the time it priced, the stock went up to $26. It opened in the $40s and never really looked back. In the case of Alibaba, the initial price talk is between $60 to $66. I suspect it's going to price at $72 and close its first day at $90.

There may be another reason that Yahoo investors are getting excited about Yahoo as a way of playing Alibaba. It has to do with comments Yahoo Chief Financial Officer Ken Goldman made at the Drexel Hamilton conference last week.

Typically, Goldman says the same thing at every analyst conference or earnings call -- that he continues to study the potential tax savings Yahoo could receive from its foreign holdings.

Last week, though, Goldman hinted more strongly that Yahoo has a plan on how to save a lot in taxes on what its remaining stake in Alibaba will be post-IPO. He confirmed that Yahoo will hold the stake for a year. He also confirmed that the majority of the stake is held in Hong Kong -- and always has been.

The implication is that after a year, Yahoo may be able to dispose of this stake almost tax-free. If so, that would be a savings to Yahoo shareholders of possibly $17 billion, or $17 per share, at the current share count.

I think part of the run-up in Yahoo's stock during the past few days has been an expectation among investors that Yahoo will receive more proceeds back from its eventual sale of Alibaba's stock. It could also an expectation that Alibaba's revenue is not going to stop increasing if its stock price is $60, $70 or $90.

Whatever multiple the market assigns to the company this year, as long as it keeps growing, there's a good chance that its market capitalization will increase during the next year.

The market has been generous to growth companies of late, whether it's Twitter, GoPro (GPRO) or El Pollo Loco (LOCO"/) .

At the time of publication, Jackson owned shares of Yahoo!.

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

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