In what appears to be another shrewd overseas investment, The Wall Street Journal reports, Yahoo!
Keep in mind that Yahoo! already owns a piece of the popular e-commerce site that hooks up businesses looking to import and export goods in and out of China. Yahoo! paid $1 billion for a 40% stake in Alibaba.com's parent company, Alibaba Group, two years ago.
The market will tell the tale on how the new $100 million investment pans out, but the $1 billion investment in 2005 has appreciated considerably. According to the Alibaba.com term sheet, the site is looking to raise as much as $1 billion by selling a 17% stake to the public. So even if there isn't a pop at the open, Alibaba.com is valued at nearly $6 billion.
That's a lot more than the $2.5 billion that Alibaba Group was valued at when Yahoo! bought in two years ago. And Alibaba.com is just a subsidiary. Alibaba watches over several properties including Yahoo! China and Taobao.
If you're not familiar with Taobao, it's the consumer-to-consumer auction site that has been giving eBay
So it's easy to see why things can heat up for Yahoo! if the Alibaba.com IPO is a hit. A few healthy trading days can result in billions of unrealized gains for Yahoo! on paper. It would also be the catalyst to get investors to fully appreciate the company's diverse investments in hot Asian markets.
Investors often ignore the billions that Yahoo! has in play in Japan, China, and Korea. Even financial journalists can stray. Marketwatch ran a story yesterday, suggesting that Google
Value is relative, as in your third cousin
The problem with relying on P/E ratios to value Yahoo! is that a good chunk of Yahoo!'s market cap is backed by its investments in Yahoo! Japan, Alibaba Group, and Gmarket
How big a pop will we see for Alibaba.com? Baidu.com
We can't rely on just Web traffic, of course. Search engines are lucrative, high-margin enterprises, but there's some serious money to be made in enabling business-to-business commerce, where Alibaba is a juggernaut. Just look at how well a company like LoopNet
Ultimately, it will be Alibaba.com's financials and the market's appetite for its growth story that dictate its worth. It's doing just fine on the fiscal front. Reuters reports that Goldman Sachs is forecasting a profit of $83.8 million this year, a sharp 186% spurt from 2006. That's actually better than Baidu, where Wall Street is looking for Baidu to grow its bottom line by 105%, to roughly $77 million this year.
The growth story is just as tantalizing. Alibaba accounts for more than two-thirds of the B2B online action taking place in China, sourcing goods for a growing list of small and mid-sized businesses in the world's most populous nation.
So Yahoo! knows exactly what it's doing in buying 10% of the freshly minted shares at the IPO price. As long as the Chinese stock market doesn't take a tumble between now and then, it's holding all of the right lottery tickets.
Can't get in on the Alibaba.com IPO? Join the club. Looking for a back door? Hop on Yahoo! to ride the coattails of a coattail rider.
Things that Yahoo! did during its summer vacation:
Yahoo! and eBay are Stock Advisor recommendations. Baidu and LoopNet are Rule Breakers picks. LoopNet is also a three-time pick of Motley Fool Hidden Gems. Want money for nothing and your stock picks for free? Check out either newsletter service for the next 30 days with a free trial subscription.
Longtime Fool contributor Rick Munarriz has nothing against riding the coattails of a coattail rider. The ride is just as fast. He does not own shares in any of the companies in this story. He is part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.