7 Ways to Play 3 High-Profile Chinese IPOs

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

In talking about future IPOs from Alibaba,, and Weibo, investors have speculated on the best way to profit from each, which includes buying on the IPO pop. However, other suggestions include buying companies like Yahoo! (NASDAQ: YHOO  ) , Softbank (NASDAQOTH: SFTBF  ) , and Sina (NASDAQ: SINA  ) . Then, there are other less talked-about options such as KraneShares China Internet ETF. Yet, in naming these seven options, which are the best for long-term investors?

High-profile Chinese Internet IPOs galore
It's official: In the next few months, at least three high-profile dot-coms based in China will make their U.S. market debut. The most significant of these IPOs will be Alibaba, perhaps the biggest in years, with analysts projecting a market cap north of $150 billion, meaning the market will likely pump it up even more.

Alibaba announced on Thursday that it is 95% sure that New York will be the venue for its IPO, which is good for investors. The e-commerce giant is expected to produce more than $350 billion worth of transactions. This is a company growing at a 50% annual clip –- it generates most of its revenue via advertising -- with expected revenue and net income of $8.6 billion and $3.5 billion in 2014, respectively, according to Bernstein Research. is another e-commerce giant, with 35.8 million active customer accounts and 211.7 million orders last year. According to its prospectus, had $14.1 billion in transaction volume during the first nine months of last year. But, with a business model very similar to Amazon, it has low margins, reporting a net income of less than $10 million. Still, like Alibaba, is growing like a weed, and analysts expect a market capitalization north of $20 billion by the time it goes public.

Lastly, Weibo is a hybrid of Facebook and Twitter in China, generating the majority of its profits from advertising and games. In the fourth quarter, Weibo's ad revenue increased 163% year-over-year to $56 million, and its non-ad revenue grew 114% to $15.4 million. Therefore, it's a rapidly growing business, one that might reach a market capitalization of $10 billion by the time of its IPO .

How do you profit?
With any of these three IPOs, you can simply buy each stock. However, with Alibaba and Weibo in particular, there are far better ways to capitalize on the demand. Specifically, you can invest in the companies that have investments in these IPOs.

Softbank is a massive Japanese telecom company that has lagged the broader market in 2014, losing 13% of its value. The near-$100 billion company is a good investment by itself at 14 times earnings, but also because it owns a whopping 37% stake in Alibaba. Hence, its position could be worth more than $50 billion, assuming Alibaba doesn't soar higher on the day of its IPO.

Regardless, Softbank has shown a willingness to make large acquisitions, including an 80% stake in Sprint, meaning the cash position from its Alibaba stake, combined with the company's existing $26 billion cash position, will give Softbank the flexibility to acquire companies, invest in infrastructure, and grow significantly larger.

Then, there's Yahoo!, which owns a 24% stake in Alibaba, potentially worth more than $35 billion. To put this in perspective, Yahoo!'s current market capitalization is only $37 billion, meaning it could possibly trade at one times cash once its stake is sold. In an acquisition-happy technology space, such a cash position will give Yahoo! the ability to make many high-profile, low-risk moves for the future.

Last is Sina, which owns 71% of Weibo. Like Yahoo!, Sina's stake could be worth more than its entire market cap of $4.3 billion. Specifically, if Weibo reaches a valuation of $10 billion, Sina's stake could be 70% more valuable than its entire company. Thus, like Softbank and Yahoo!, this would give it the ability to make future investments, buy back stock, pay dividends, or perhaps take the company private with billions still remaining on the balance sheet.

One more play
KraneShares China Internet ETF, also called KWEB, is a direct reflection of the valuation and performance of Internet companies in China. Since its inception date last July, it has increased in value by 44%, as its top-five holdings have all performed exceptionally well.

As new Chinese Internet IPOs occur, KWEB factors them into its ETF, which means investors get the chance to ride the excitement of such stocks higher as a collection. Furthermore, with the high level of excitement surrounding Alibaba,, and Weibo, KWEB is a way to capitalize on the likely gains that will be seen throughout the industry.

With that said, KWEB is still a small ETF, having total assets of just $64.8 million, but growing fast.

Final thoughts
As we've seen in IPOs during the last two years, demand is high for fast-growing dot-coms, especially large companies like Alibaba,, and Weibo. You can certainly invest in any of these companies, or you can gain the safety of an ETF while capitalizing on the likely excitement and upside created with these IPOs.

The final suggestion is to invest in the companies that stand to generate massive cash positions following these IPOs. Softbank has shown a key interest in expanding to become a worldwide telecom giant, which it can accomplish with another $50 billion in cash. However, the cash/valuation metric that both Yahoo! and Sina will present following Alibaba and Weibo's IPO is near unprecedented.

Yahoo! will have the cash to double in size, and Sina could triple, yet both companies trade at a valuation that is significantly discounting this fact. As a result, Yahoo! and Sina look to have the most to gain both short-term as the IPO nears, then long-term once the investments are divested.

Climb inside Warren Buffett's head
Warren Buffett has made billions through his investing and he wants you to be able to invest like him. Through the years, Buffett has offered up investing tips to shareholders of Berkshire Hathaway. Now you can tap into the best of Warren Buffett's wisdom in a new special report from The Motley Fool. Click here now for a free copy of this invaluable report.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2877482, ~/Articles/ArticleHandler.aspx, 9/1/2015 6:19:53 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

Today's Market

updated Moments ago Sponsored by:
DOW 16,058.35 -469.68 -2.84%
S&P 500 1,913.85 -58.33 -2.96%
NASD 4,636.11 -140.40 -2.94%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/1/2015 2:09 PM
SFTBF $57.00 Down -1.07 -1.84%
SINA $38.10 Down -0.65 -1.68%
Sina CAPS Rating: ***
YHOO $31.60 Down -0.64 -1.99%
Yahoo CAPS Rating: ***