How the Alibaba IPO Has Turned into Huge Profits for These Tech Firms

Alibaba IPO

The Alibaba IPO is expected to take place as soon as Sept. 16, and Alibaba Group Holding Ltd. (NYSE: BABA) has spent the last year preparing to go public by acquiring numerous companies.

Alibaba IPOAccording to Bloomberg, Alibaba has spent roughly $5 billion acquiring either full or partial stakes in numerous companies in the last year. That's a common strategy for companies preparing big IPOs - Facebook Inc. (Nasdaq: FB) famously spent $1 billion on Instagram prior to its IPO.

And Alibaba shows no signs of slowing down its buying spree.  

A recent Forbes report indicates that Alibaba could spend another $5 billion to $10 billion on acquisitions following its IPO.

Many of Alibaba's recent acquisition targets have been U.S. companies. According to the same Forbes report, Alibaba has spent $968 million on U.S. tech firms since 2013. That's the same industry Alibaba will reportedly target after the IPO.

Some of the e-commerce firm's more notable U.S. investments include $215 million in the messaging app Tango, $170 million in the online sports memorabilia seller Fanatics, $120 million on the video game startup Kabam, and an undisclosed amount in the ride-sharing app Lyft. Alibaba had been in funding talks with Snapchat earlier this month that would have valued the photo-sharing app at $10 billion, but those talks fell through.

The string of U.S. acquisitions helps Alibaba increase brand awareness in the United States. The fact that Alibaba has been focusing on tech also helps the company form relationships with some of the most innovative leaders the U.S. tech industry and Silicon Valley has to offer.

Additionally, by investing in various tech and Internet companies, Alibaba can continue to expand its reach over the Chinese Internet market - rather than focusing solely on e-commerce.

But Alibaba isn't the biggest winner in these deals...

The Magic of Alibaba's Pre-IPO Buying Spree

While the deals help Alibaba, they bring even bigger benefits to the purchased companies - benefits they wouldn't have found on their own. 

Take the messaging app Tango. The $215 million Alibaba paid was for a minority stake in the company, estimated between 20% and 25%.

Tango is an app that allows users to make calls, send texts, and share pictures free of charge over a data connection. The move was designed to improve Alibaba's mobile base before its IPO, as Tango boasted more than 200 million mobile users at the time of the purchase

For Tango, the income of cash from Alibaba allowed it to double its workforce to 300 employees and hire more outside developers.

Additionally, the company's co-founder Eric Setton has said that the partnership with Alibaba will give Tango market insights that will help it compete with rivals such as WeChat, which has more than 450 million users.

"We want to build the WeChat of the Western world," Tango Chief Executive Officer Uri Raz told The Wall Street Journal. "We have all the WeChat features but each one of them is Westernized."

Two weeks after the Tango purchase, Alibaba put an unspecified sum into the ride-sharing app Lyft as part of a $250 million round of funding.

At the time, company officials said that investing in Lyft would make Alibaba "a more global company." Alibaba wants to increase its presence in the United States, and Lyft currently operates in 60 cities across the country. Lyft also has been reporting double-digit percentage growth in both revenue and total fares according to co-founder John Zimmer.

For Lyft, Alibaba's cash will help the company continue its expansion, particularly as it eyes the international market. Currently, Lyft only operates in the United States.

"[Alibaba] talked a lot about international and how they could be helpful as we expand internationally," Zimmer told Bloomberg. "That was really valuable to us. There are many markets where [Lyft] will work."

While Alibaba and its newest U.S. acquisitions are both benefitting from the new relationships, the best news for all parties is the growing market in China that they will all now be exposed to...

Alibaba IPO Taps into Booming China Growth

"According to the research I've seen, e-commerce in China is projected to hit $540 billion by 2015, and that's just for starters" said Money Morning Executive Editor Bill Patalon. "By 2020, China's e-commerce market will be worth more than the United States, the United Kingdom, Japan, Germany, and France combined. So we know that growth is coming... and we know that Alibaba is the No. 1 gun."

The number of Chinese e-commerce users is expected to hit 520 million by 2015 - more than double the number in the U.S.

Alibaba IPO chartBut even tech companies that don't operate in the traditional "e-commerce" market can still profit immensely in China, because the Internet industry itself is taking off as well...

"Despite that torrid growth, China is still very much an online market in development - meaning the profit opportunities are huge," Patalon said. "For instance, the impact of social media in China is four times what it is here in the U.S. market."

"The number of consumers and business folks connected to the Internet in China - whether you're talking about computers, tablets, or smartphones - is bigger than the entire U.S. population," Patalon said. "And the government there is actually pushing growth. Beijing has mandated that 1.2 million folks - 85% of its population - will have broadband connections (3G or 4G) by 2020."

While it may be weeks away, investors don't have to wait to begin profiting from the Alibaba IPO. The best news about this looming deal is that it has created a major profit opportunity that most investors haven't yet noticed... It's happening now, weeks before Alibaba hits the market...

In fact, this could be your one and only chance to make the kind of gains normally reserved for the high-net-worth investors and bankers. And there are three ways to play. You can learn more about this Alibaba profit opportunity here.

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