The Alibaba IPO Will Make Billions of Dollars for This Tech Company

The Alibaba IPO is officially coming to the United States in 2014, and the deal is expected to raise as much as $15 billion for China's largest e-commerce company.

Alibaba IPOA Reuters report in February polled eight analysts who estimated that Alibaba could reach a valuation of $140 billion.

Naturally, investors want in on the Alibaba IPO, which is likely to be one of the largest IPOs in U.S. history. Those who are able to get their hands on shares of Alibaba before it goes public stand to make quite a profit.

But no one will be profiting quite like this company...

How Yahoo (Nasdaq: YHOO) Will Cash In on Alibaba IPO

Those who have been following the Alibaba IPO know that Yahoo! Inc. (Nasdaq: YHOO) owns a 24% stake in Alibaba Group Holdings.

In an investment that looks like an absolute steal now, Yahoo paid $1 billion for a 40% stake in Alibaba back in 2005.

Yahoo has been trimming its stake in Alibaba since that acquisition. The biggest sale happened in 2012 when it sold 20% of its shares back to the Chinese company. In that deal, Yahoo pocketed $7.1 billion.

As Alibaba's valuation continues to creep higher ahead of its IPO, that $7.1 billion sell-off in 2012 looks like a drop in the bucket compared to how much more Yahoo can make in 2014...

When Alibaba finally makes its public debut, Yahoo will be required to sell almost half of its stake in the company, per a prior agreement. If Alibaba does in fact meet the $140 billion valuation like many analysts expect, Yahoo is looking at cashing in almost $17 billion on 12% of its Alibaba shares.

From there, Yahoo investors will be looking for the company to pull off major acquisitions, possibly pay a one-time dividend, or increase in the company's share buyback program.

While the payoff from the Alibaba IPO will provide a short-term bump for YHOO investors, what Yahoo does following the mega-deal will be important to watch...

Yahoo (Nasdaq: YHOO) Stock's Long-Term Potential

Yahoo has continued to profit off of the good news regarding the Alibaba IPO.

On Monday, March 17, YHOO stock jumped 4%, or $1.51, when Alibaba announced that it would be filing its IPO in the United States. In the past 12 months, YHOO stock is up almost 51%.

However, the question remains as to how well Yahoo stock will perform following the IPO.

Yahoo currently has a market cap of $39 billion. With the Alibaba valuation estimate set at $140 billion, Yahoo's stake would be worth an incredible $33.6 billion. At that point, the vast majority of Yahoo's value comes just from owning part of Alibaba.

And while that will undoubtedly result in strong short-term success, it leaves questions moving forward.

"If you are investing in Yahoo for the Alibaba payoff you may want to be careful. Investors should be asking, 'will I get to see this cash?'" BGC Financial Senior Technology Analyst and Director of Research Colin Gillis told CNBC. "The first step with this asset is to turn it into cash, and then the next bit is you [have to] turn that cash into revenue growth."

Short-term, Yahoo should profit ahead of the Alibaba IPO. And if the Alibaba IPO is as successful as many analysts predict, YHOO should fare well through the initial public offering.

Where it goes from there is much less certain. Without a major acquisition or revitalized business plan, YHOO stock could founder.

Have you been following the Alibaba IPO? Are you trying to get in on this mega deal? Let us know on Twitter @moneymorning using #Alibaba.

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