Yahoo! ( YHOO ) has gained focus again thanks to the Chinese e-Commerce goliath - Alibaba Group Holding Ltd. - which is planning to launch its Initial Public Offering (IPO) on the NYSE on Friday, Sep 19. This is arguably the hottest public offering this year.
The leading global technology company holds 22.5% share of the IPO and plans to sell 121.7 million Alibaba shares in the upcoming IPO. It is estimated that Yahoo will garner about $8 billion cash, if it is able to sell its share.
Reason for Spike in Yahoo's Traded Volumes
The Alibaba IPO is definitely going to be a major event and every investor and trader would like to get hold of a piece of the pie once the stock debuts. However, it appears that retail investors would find it very difficult to buy Alibaba shares at the current target IPO price.
Thus, the solution would be to purchase Yahoo shares and gain a backdoor entry into Alibaba. In fact, many investors have already started purchasing Yahoo shares to capitalize on the IPO
Over the last month, the volume of options trading in Yahoo has increased exponentially and exceeded 929,000 contracts on Thursday. The spike in yesterday's volume increase reflects that investors are upbeat about the upcoming IPO and expect Yahoo's Alibaba stake to be worth more than anticipated.
2014 has been a very productive year for IPOs. Alibaba's IPO is expected to be one of the most anticipated IPOs since that of Facebook ( FB ) in 2012, and could also signal an end - at least for now - of the 'hot' tech names waiting to go public.
Alibaba has finally set its IPO price at $68, the top end of its targeted range. The e-Commerce giant has chosen Barclays PLC as the lead underwriter for its IPO and signed agreements with several large U.S. banks, such as Credit Suisse Group, JP Morgan Chase, Citigroup, Morgan Stanley, Goldman Sachs, Deutsche Bank AG ( DB ), as underwriters. At the current target price, the company is valued at $167.6 billion, bigger than Amazon and more than double the value of eBay. It is expected that Alibaba Group Holding Ltd. will start trading with the symbol 'BABA' on the NYSE.
The companies that went public earlier have outperformed the broad markets and many generated triple-digit returns. These include Facebook - up 101.4% since its IPO; Twitter - up 13.3%, and LinkedIn - up in triple digits.
Friday will be an exciting day for technology stock investors, and those who have been following Alibaba for years. In addition, IPOs have done quite well as of late and yielded solid returns to investors who have hung on to these stocks for quite some time. Investors are very excited about the Alibaba IPO because of possible major capital gains and Yahoo stands a chance to significantly benefit from it.
Yahoo has the potential to grow on its own and CEO Marissa Mayer needs to present a favorable scenario of its future prospects during the upcoming conference call. The company needs to innovate and channelize the proceeds toward product development. We believe that prudent usage of the cash received could revive core revenue growth and narrow the ever-widening gap between Yahoo and its main competitors, Facebook and Google ( GOOGL ).
Yahoo shares currently carry a Zacks Rank #3 (Hold).
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