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Three reasons to invest in the Alibaba IPO

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Now that Yahoo Inc.’s (NASDAQ:YHOO) freeing up 20 percent of Alibaba’s shares, the Chinese tech giant Alibaba can begin preparing for its IPO. Expect a lot of fireworks as Alibaba’s one of the most exciting tech companies behind the Great Firewall. Here are three reasons to consider investing in the Alibaba IPO:

1) Fingers in a lot of pots. Summing up Alibaba’s internet operations is a bit like trying to describe Microsoft’s software offerings. They both do a hell of a lot. Alibaba’s most promising properties, though, are Alibaba.com (a business-to-business commerce site), Taobao.com (an eBay-like auction and Buy It Now site), eTao.com (a shopping search engine similar to Google Products), a cloud computing division, and Alipay (a PayPal-like payment processor for online transactions in China).

2) Rapid growth. One of the easiest ways to see how fast Alibaba’s growing is to look at Yahoo’s returns. In 2005, Yahoo invested $1 billion for a 40 percent stake in Alibaba. Now, they’re selling half that stake for $7.1 billion. Their full stake is worth some $14 billion, and that means they’ve made 14 times their money in seven short years.

3) The fat part of the curve. For most Westerners, buying and selling products online is second nature. That’s not the case in China. The country’s still in the fat part of the growth curve for e-commerce. Indeed, China’s online shopping industry is expected to grow by 42 percent this year (per Bloomberg). Contrast that with the U.S. where Q1 2012 e-commerce growth stood at 17 percent (per comScore). As China’s largest e-commerce provider, Alibaba stands to rake in a big part of that 42 percent growth.

Already, Alibaba’s pulling in substantial profits. The company generated $2.3 billion in the year ended Sept. 30 ($1 billion more than the previous year) and posted a profit of $268 million.

While we don’t know Alibaba’s IPO date yet, it is expected to come by the end of 2015 at the latest.

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