'Open Sesame': Unlocking Alibaba's Wealth (Update 1)

Tickers in this article: FB JAMFX SINA YHOO
(Updated with commentary on potential Weibo IPO or carve-out, and possible market reception to a Weibo or Alibaba IPO)

NEW YORK (TheStreet) -- Alibaba's new $586 million, 18% stake in Sina's "Twitter of China" Weibo unit has investors searching for ways to play Alibaba as rumors swirl about an initial public offering.

The value of an Alibaba IPO has been estimated to be worth as much as $100 billion, soaring from $45 billion. Analysts widely predict that the IPO will take place as soon as year-end as the company enters the final stages of preparing for a debut.

Eric Jackson, president and founder of Ironfire Capital, a Naples, Fla.-based hedge fund that invests in Chinese stocks, believes that after China's biggest e-commerce giant becomes public, one of the key assets it could snap up is the rest of Sina, benefiting the Internet portal's shareholders.

By investing in Weibo, Alibaba has already done the job of virtually unlocking the value of Sina's Weibo property: over $3 billion, which is almost the entire market value of Sina, rendering the stock grossly undervalued, essentially at zero dollars, according to Jackson: "I'm long Sina because I think investors will realize the price gap."

With a full-on acquisition, "they're hitching their wagon to a giant who also hates Tencent like they do." Tencent is China's largest online gaming and social networking company, and Sina is positioning itself to be a formidable rival to Tencent's WeChat social messaging service.

Prior to the Weibo investment, Alibaba barely had any exposure to social media. But by joining forces with Weibo, with its 500 million users and potential to become the " Facebook of China" means that it now has a partner against Tencent as their mutual "enemy."


Ryan Jacob, chairman of Jacob Asset Management and manager of the Jacob Internet Fund , said that Sina is one of his largest positions and that he is pleased that Alibaba's investment has validated Weibo's value. He said he is sure that when investors start to feel more confident about the Chinese economy and Chinese stocks, they will become as enthusiastic about Sina as he is. Alibaba's validation of Weibo's value has only increased his anticipation that shareholder value will be unlocked through a U.S. spin-out or IPO of Weibo. After the move, both companies would be able to define their objectives more clearly to shareholders, he said.

Randy Warren, CIO at Warren Financial Service in Exton, Pa. said that a carve-out or partial IPO of Weibo in which Sina retained a 20% to 25% stake would "make a lot of sense."

"Sina just pulled in a lot of extra money into their coffers by selling a stake to Alibaba ... they would probably still retain some ownership in that public company so they would have even more money coming into their balance sheet," while being able to focus on its core businesses, he said.

Brian Frank, portfolio manager at New York-based Frank Capital, said that shareholders of Yahoo! , a partial Alibaba owner, and Alibaba would benefit from a Weibo spin-off or IPO too, as cash proceeds from the IPO boost Alibaba's balance sheet and valuation; and in a spin-off, allow Alibaba and Yahoo! shareholders to receive shares of the new company tax-free.

Warren said that handset makers are also watching closely for a Weibo IPO, as they have taken a great interest in social networking because it drives traffic to mobile devices.

"The handset makers are probably doing exactly that right now, trying to figure out exactly what this is worth to them," said Warren.