- Alibaba will most likely begin trading on the NYSE on Sep 19 2014.
- The chances for a retail investor to get stocks prior to listing, at the IPO price, are extremely low.
- A good strategy would be to take up a pre IPO position in Yahoo or Softbank and use them as proxy stocks to cash in on the pre listing gain in Alibaba’s valuation.
- Once the Alibaba listing is complete, investors can move funds from these proxy stocks to Alibaba stock, which will be available through any online brokerage account.
Alibaba (BABA) IPO is on the radar of every tech investor and it makes it that much tougher to get your hands on the stock at the IPO price of $60-$66. To most retail investors, the stock will only be available for purchase once it starts trading on the NYSE on Sep 19, 2014. So how exactly can a retail investor invest in the Alibaba IPO at its IPO price?
There is a very small chance for a retail investor to directly invest in Alibaba at its IPO price before the trading begins on NYSE. That would require you to have friends, family, or know some other insider to get any shares before that date. Like all IPO’s, it will require industry connections and very deep pockets to be able to secure stock shares at the $60 to $66 IPO price, with a fair assurance of allocation.
However, there are other indirect ways to benefit from the IPO valuation gains of Alibaba, which could happen before the listing on the NYSE. Investors can gain a back door into Alibaba stock through positions in the stocks of Yahoo or Softbank at their current prices. The stocks currently trade as proxies to Alibaba valuation due to Yahoo (24%) and Softbank (34%) owning a large share of Alibaba’s stock. The two stocks have traded in close resemblance to each other over the last few days as the market has been gripped by the hype surrounding the Alibaba IPO.
Source: Google Finance
The two will continue to largely trade in relation to Alibaba valuation over the short term and therefore any positions in these could be used by investors to capture the pre listing gains from the Alibaba IPO indirectly.
Another benefit of indirectly investing in these scrips could be a lower volatility as internet IPO’s are notoriously famous for their post IPO volatility. An investor taking position in any of these can later sell these positions in exchange for Alibaba's stock to benefit from the Chinese E-commerce giants post IPO performance. Once trading on the NYSE, Alibaba stock can be brought through any regular online brokerage account an investor might have.
While it is true that the Alibaba stock might shoot up on the opening day, if you are an investor buying it for the long term the first day change in price shouldn't matter much. Alibaba’s solid growth, high profitability and cash flow margins should make it an attractive long term growth company which will eventually drive the stock higher too. Happy investing!!