Whitefish, MT / September 23, 2014 / Alibaba Group Holding Ltd.'s (BABA) initial public offering was the world's largest, raising an estimated $25 billion and netting underwriters more than $300 million. With overwhelming demand for the shares, the stock surged nearly 40% in its trading debut on Friday, signaling renewed investor appetite in Internet stocks and renewed confidence in China's troubled equity market.
Yahoo! Inc. (NASDAQ:YHOO) could become a big winner if Alibaba's stock continues to see success. As an early financier of Alibaba, the company owns some 401 million shares in the Chinese e-commerce giant. Yahoo has already sold 27 million shares during Alibaba's IPO - netting it $7 billion in cash - but investors are now wondering what the plan is for the rest of the stockpile.
The PowerShares QQQ Trust (NASDAQ:QQQ) as a whole has outperformed the S&P 500 SPDR (NYSE:SPY) by about 5% since January, as investors flock to technology stocks ahead of other industries. While Chinese tech stocks haven't fared quite as well - with stocks like Sungy Mobile Ltd. (GOMO) falling more than 50% since May, the U.S. tech industry has risen higher in aggregate.
The U.S. tech rally hasn't exactly been even keeled, however, below the surface. Facebook Inc. (NASDAQ:FB) led the sector this year, jumping more than 40% since the start of the year, while other stocks like Twitter Inc. (NYSE:TWTR) and LinkedIn Corp. (NYSE:LNKD) fell 18% and 4%, respectively. Content stocks like AOL (NYSE:AOL) and IAC Interactive (IACI) are also lower on the year.
Regardless, there's little doubt that the IPO has renewed interest in the tech sector and perhaps in IPOs themselves. The higher valuation achieved by Alibaba will propel valuations across the sector and could push shares higher, while the robust appetite for the IPO could encourage more new tech issues to undergo their own IPOs sooner rather than later - potentially having the same effect.
Value & Growth Blend
Tech investors traditionally bet on a stock's growth rather than its earnings or book value, but there are some opportunities in the market that bridge the gap. Value stocks provide a margin of safety that growth stocks lack, while the growth component provides the long-term potential that value stocks lack. Combinations of the two are rare in the stock market, but they can be found from time to time.
CrowdGather Inc. (CRWG), a leading provider of social communities and games, is an ideal example of a blend. With a book value of $0.09 per share, according to Yahoo! Finance, investors may have a built-in margin of safety that's not too far from its share price of about $0.12. Management's recent acquisition of Plaor has also provided a significant catalyst for long-term growth in the social gaming space.
Transparency Market Research expects the social gaming industry to grow at a 16.1% clip to reach $17.4 billion by 2019. According to a recent press release, the company generates approximately $1 million in annual revenue with over 20,000 active daily users. CrowdGather hopes to leverage it large social community audience to increase these numbers and unlock value over time.
"Our expectation is that we will emerge from this merger as a stronger and faster growing business," said CrowdGather Chairman & CEO Sanjay Sabnani. "Our vision is to create an exciting, high growth company that will leverage our traffic, users, and social media to provide Plaor's titles with immediate access to hundreds of thousands of potential players for their games."
Chairman & CEO Sanjay Sabnani and other insiders have also been active buyers of the stock in a vote of confidence in its future. For example, Mr. Sabnani purchased 70,000 shares at $0.11 a piece on August 21, 2014 in open market transactions. While open market sales can occur for many reasons - such as portfolio diversification - open market purchases signal management's confidence.
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SOURCE: Emerging Growth