Best Way To Play The Upcoming Alibaba IPO?
Alibaba is expected to raise $15 billion through its IPO, which could value the company at more than $130 billion, according to the New York Times. The offering would be the second largest in history behind Facebook’s $16 billion offering in May 2012. The company is expected to list on a U.S. stock exchange in the third quarter.
Alibaba is one of the world’s biggest Internet companies that provide marketplace platforms similar to eBay Inc. (NASDAQ:EBAY), PayPal Inc. and Google Inc. (NASDAQ:GOOG), allowing merchants to sell goods directly to consumers. Notably, the company occupies 80% of the Internet e-commerce market in China.
The online giant swung to a profit of $792 million in the third quarter from a net loss of $246 million in the year-ago quarter. Though revenue growth slowed from 61% in the second quarter to 51% in the third, it still outpaced many of its major rivals such as the 34% revenue growth at Tencet Holdings (OTCMKTS:TCEHY), 24% growth at Amazon.com (NASDAQ:AMZN) and 12% growth at Google.
The public launch would likely benefit from China’s booming Internet market and would boost the company’s global presence as well. Additionally, the IPO will be a boon for Yahoo Inc. (NASDAQ:YHOO), which owns a 24% stake in this Chinese Internet giant.
Though the company has not yet revealed whether it will trade on the New York Stock Exchange or Nasdaq, the following ETFs might be in focus in the coming days ahead of the IPO and see busy trading. Also, these ETFs are considered safe bets for investors seeking to avoid single stock risk while participating in the potential upside offered by the new e-commerce giant’s going public act.
KraneShares CSI China Internet Fund (NASDAQ:KWEB)
This ETF is newly debuted in the China ETF space, having amassed an impressive $75 million in AUM in just eight months. It provides concentrated exposure to the Chinese Internet market by tracking the CSI China Overseas Internet Index (read: China Internet ETF: The Best Choice in the Space?).
Holding 28 stocks, the product allocates a combined 22.4% of assets to TCEHY, QIHO 360 Technology (QIHU) and Baidu.com (BIDU). Alibaba is expected to find its entry into the fund’s roster within 11 days of the company’s IPO.
The fund is slightly expensive, charging 68 bps in fees per year. Additionally, it trades in a moderate volume of over 53,000 shares a day, ensuring extra cost in the form of bid/ask spread. KWEB gained over 13% so far this year.
PowerShares Golden Dragon China Portfolio (NYSEARCA:PGJ)
This fund might also add Alibaba to its portfolio as it looks to track the performance of the U.S. listed companies that derive the majority of revenues from China. It follows the Nasdaq Golden Dragon China Index and holds 71 stocks in its basket. The product has amassed $3187.7 million in its asset base and sees moderate average daily volume of nearly 158,000 shares. Expense ratio came in at 0.70%.
More than half of the portfolio is allocated to information technology, followed by consumer discretionary (22.18%). Other sectors receive minor allocations in the portfolio. The top three holdings include QIHU, Ctrip.com International (CTRP) and BIDU.