Why I Plan on Investing in Alibaba’s IPO
***Update (9/18/2014): Although Alibaba is an exceptional company, the excessive hype around it’s IPO may make it a subpar investment during it’s IPO. While I think the company will do very well in the long-term, it may struggle initially. After reading this article, check out Most Mega IPOs Are Mega Lagards.
This coming Friday, September 19, the Chinese conglomerate, Alibaba, will open on the US stock exchange. This Chinese company, which Yahoo! currently has a stake in, has a tremendous amount of potential. For those of you new to Alibaba, this article will fill you in about the company, give you some reasons why I believe it’s a great buy, and share my predictions for the future of Alibaba from an investors standpoint.
***Remember, I am not a financial advisor. This article shares my opinion and should in no way be the sole determiner of your investment strategy.
If you sign up for a TradeKing account (the stock broker that I use), place $3000 in the account, and make 3 trades within 3 months, you and I both get an extra $50! So, consider checking that out.
What exactly is Alibaba, and what do they do?
You could sum Alibaba up as the Amazon, Google, Paypal, and Overstock.com of China. And that’s only part of what they do.
Although you would need to look into each one of these companies to gain a full understanding of Alibaba’s services, the company’s subsidiaries includes:
- Alibaba Cloud Computing
- Alibaba.com Ltd.
- Alisoft Holding Limited
- AutoNavi Holdings Ltd
- China Yahoo!
- ChinaVision Media Group Limited
- cnzz.com, Inc.
The Chinese use Alibaba’s services for their online purchase (Tmall is an Amazon equivalent), exchanging funds (like Paypal), online searches (they own China Yahoo!), video sharing (similar to YouTube), instant messaging, and cloud storage. Other than owning a social media platform, Alibaba can pretty much meet every online need in China.
Do American’s use Alibaba?
You are probably thinking that you have never used or benefited from Alibaba’s services. After all, you don’t live in China. You are content with Amazon, Google, and Paypal – you don’t need an alternative. But in all reality, you probably have made a purchase that is, in part, thanks to Alibaba.
If you don’t live in China, the services that you have likely benefited from is Alibaba.com – the world’s largest marketplace for importing and exporting. If you’ve ever wondered where people find products to sell on Amazon or eBay – check out Alibaba.com. Whether you want to import Vespa’s from Italy, Acaia berries from Brazil, or TOMS shoes from China (for about $5/each), Alibaba has you covered.
The odds are, if a product crosses borders, it has been bought or sold through Alibaba.com.
Why Do I Think Alibaba’s Stock is a Great Investment?
If the previous section hasn’t convinced you that Alibaba is a great buy, let me share a few more thoughts.
Firstly, China’s population is about 4x that of the US- and China is only now starting to develop a middle class. This means that the consumer market’s in China have a LOT of room for future growth. And although some American companies are entering China, Alibaba already has an incredibly strong position, understands the culture, and is a well respected brand. Alibaba’s future in China looks bright.
Secondly, before something is sold on Amazon or eBay, it is sold through Alibaba. If I wanted to sell screwdrivers on Amazon, I would go to Alibaba, find a manufacturer, a purchase 500+ screwdrivers in bulk. Once they arrived in the US, I would sell them online. Therefore, the success of sites like Amazon and eBay will only enhance the success of Alibaba.
Thirdly and finally, the company’s business models make sense. Warren Buffets says that he will never invest in a business that he can’t understand. Alibaba is easy to understand. It’s an online marketplace – and we all know online marketplaces can make a lot of money. It dominates the Chinese market – and we all know that China is a growing player in the global economy. It is positioned to succeed (even more) on a global level – and we all know that borders will continue to disappear in the future.
Personally, I am playing with the idea of importing items to sell – and I would definitely use Alibaba to find a manufacturer. Therefore, I clearly see the value that Alibaba has to offer, and I would love to earn a dividend for my future purchases through this site.
In short, it makes sense, has a proven track record, and has plenty of room for future growth. This is why I believe that Alibaba could be a phenomenal long-term investment.
Alibaba’s Future Stock Prices: My Prediction
Because Alibaba has received a lot of hype, the odds are that the price will shoot up for the first few days. There is a good chance that this will be a bubble, and the price will drop back down – potentially even lower than the open.
For short-term traders, this drop would be bad news. However, just like with Facebook stock, those who invest for the long-term could do incredibly well (if you recall, people were furious when Facebook dropped from 24 to 17 right at the beginning – but the stock is now trading at 70+, making it a great investment for those who held on to it).
The gamble is whether to buy at the beginning, or wait for the dip. My plan is to do both. I am going to put in a portion of my investment right at the beginning, and then watch to see how the stock aligns itself a week or so later. If it has dropped, I will likely invest more.
The key is to be patient! If you are looking for a quick buck – Alibaba might be a good buy, but I wouldn’t bank on it. However, if you are willing to be patient – I believe that Alibaba stock could easily double in the next couple of years.
What to Do if You Want to Invest
There are many stock trading platforms online (and perhaps you already have one setup). I use TradeKing, and again, if you join me through this link, we could each make $50 extra.
It takes a couple of days to get the account setup and transfer funds from your bank, but you could still be set to purchase on Friday (if that’s what you decide to do).
Once more: I AM NOT A FINANCIAL ADVISOR.This article is intended to inform you of my plan to invest in Alibaba, and the reasons why I believe it is a good idea. However, investing always carries a bit of risk (especially when the market is as high as it is now), and you should not make this investment solely because of my suggestion.
Do you think Alibaba is a good investment? Are there any other stocks that you think are worth looking into?
About Author Rob
Rob blogs at Money Nomad - where he shares strategies and tips for becoming a remote entrepreneur. When not working on his own projects, Rob writes articles for businesses and thought leaders. You can find him on Twitter @rlerich.