Profit from the Most Anticipated IPO in Years (Before It Hits the Market)

China's Alibaba is a clear leader in the world of e-commerce and is a combination of PayPal, eBay, and Google all rolled into one.

It accounts for more than 50% of online sales in China, the world's number two e-commerce market, and one that's on track to overtake the U.S. by the end of the decade.

Analysts expect the company to go public as early as the end of this quarter. And investor interest is off the charts...

That's why I want to show you how this massive interest in Alibaba can direct us to a tremendous profit opportunity before the IPO hits the market...

Analysts Are Missing the Potential

Consider that Alibaba's IPO could raise as much as $20 billion with a market valuation between $100 billion and $150 billion.

With Alibaba, investors will be getting a stock that offers a broad play on the world's most populous economy and a mushrooming web sector.

Market researchers McKinsey & Co. estimate China's e-commerce market at $210 billion for 2012, the last full year for which data was available.

But that figure greatly understates the potential there.

According to McKinsey, Chinese e-commerce grew at an annual compound rate of 120% over roughly the past decade.

So, when analysts estimate a market value of $420 billion by the end of this decade, that gives us a better insight into Alibaba's true potential worth.

The company has a vast web empire to tap China's thriving e-commerce market. It boasts several successful web portals as well, with online payment services similar to Google Checkout and PayPal.

Called Alipay, the payment unit serves as an escrow system for e-transactions. As of mid-2013, it had the largest market share in China, accounting for more than 800 million registered accounts.

And that's just one of its many portals. For instance, Alibaba also operates a site known as TaoBao, which is the firm's consumer-to-consumer portal, offering buyer and seller capabilities similar to eBay.

All of which helps explain why Alibaba has such strong reported financials. From July to September 2013, the company's sales reached $1.78 billion, with net income coming in at $801 million.

But the company is hardly resting on its laurels. It plans to expand into overseas markets and also is moving into the growth sectors for gaming and mobile apps.

Yahoo Led Us to an Even Better Play

In case you're wondering how such detailed financial data came to light regarding privately held Alibaba, it's because of Yahoo! Inc. (Nasdaq: YHOO).

Some investors may be tempted to buy Yahoo as an indirect play on Alibaba, because, yes, Yahoo owns 24% of Alibaba - a stake that Bloomberg says could have a post-IPO value of $18 billion.

And the fact remains that Yahoo is a great Internet property that's in the midst of a major turnaround.

But as much as we like Yahoo for the long haul, in no small part because of the Alibaba relationship, we think there is a better way to invest in China's e-commerce boom....

The KraneShares Trust (Nasdaq: KWEB) ETF is a broad play on the fortunes that will be made in China. With this recently launched ETF, investors gain access to the top stocks in the space.

While at present there's no proof the ETF will invest in Alibaba, the fund's recent history makes that seem highly likely.

Just look at what happened with YY Inc. (ADR) (Nasdaq: YY). The firm went public in December 2012, and KWEB got on board.

In fact, the fund has invested 3.4% of its assets in YY, which despite the market's recent weakness is up nearly 450% since the stock began trading in the U.S.

A Fund Loaded with Proven Winners

With 30 stocks in their portfolio, KWEB's managers have picked some amazing winners.

Let's start with Tencent Holdings ADR (OTCMKTS: TCEHY). A well-regarded holding company that does it all, Tencent offers online payments, social networks, gaming, advertising, music, and video.

Tencent accounts for roughly 10% of the ETF's holdings. The firm's stock price is up 178% in the last two years, offering excellent support for KWEB's investors.

SouFun Holdings Ltd. (ADR) (NYSE: SFUN) is another noteworthy holding. The company controls an Internet portal focused on real estate and home improvement in China.

SFUN has simply crushed the overall U.S. stock market by a factor of nearly 10-to-1 over the past two years. Even after a recent correction, shares are up nearly 380% compared with a two-year return of roughly 34% for the S&P 500.

Then there's Baidu Inc. (ADR) (Nasdaq: BIDU), China's largest search engine with a market share of more than 60%. Baidu also ranks as the world's second-largest search firm behind Google and handles 19% of the world's online search traffic.

Baidu has moved aggressively into China's flourishing mobile sector. The company now has some 20 million active daily users for its mobile apps. It's also making forays into social media and digital music distribution.

NetEase Inc. (ADR) (Nasdaq: NTES) is one of China's oldest e-commerce firms and is heavily involved in online gaming, a very lucrative market.

Strategy Analytics estimates that China contributed $8 billion to global online gaming sales of roughly $15 billion last year. Gaming dominates NetEase's operations, accounting for 83% of the firm's $401 million in sales in last year's third quarter.

NetEase also is trying to expand its base for additional sales. It now offers such services as e-mail, advertising, mobile apps, and web portals.

Meantime, Qihoo 360 Technology Co. Ltd. (NYSE: QIHU) is a leading software company in China with particular expertise in protecting against computer viruses.

Searching for additional sales, Qihoo has expanded into web browsers, mobile apps, and the flourishing search business.

Two years ago, the firm launched a search engine of its own to rival Baidu. The brokerage firm Stifel Nicolaus says Qihoo now boasts nearly 23% of China's search traffic.

Thus, with its focus on a broad and growing market, KWEB is a much better way to play Alibaba's impending IPO than simply buying Yahoo.

This ETF greatly reduces the risk inherent in buying a newly issued stock.

And even better, it provides investors a stake in some of the most profitable companies on earth...

About the Author

Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...

  • He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
  • He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
  • As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.

This all means the entire world is constantly seeking Michael's insight.

In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.

Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.

And even with decades of experience, Michael believes there has never been a moment in time quite like this.

Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.

To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.

His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.

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