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Why You Should Care About Alibaba's IPO



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    BEIJING - AUGUST 12: A man walks past the logo of Alibaba (China) technology Co., Lth on August 12, 2005 in Beijing, China. Yahoo Inc. signed a deal to buy 40 percent of for EUS 1 billion cash while handing over the running of its China operations to the Chinese online retailer in the biggest investment by a foreign company to gain access to China's 100 million net users. The deal creates an e-commerce giant, with the combined entity valued at four billion USD. (Photo by Guang Niu/Getty Images)

    The most anticipated initial public offering comes from a Chinese e-commerce site partially owned by Yahoo, according to reports. But why should anyone in Silicon Valley care about a Chinese company? 

    The reason is that Alibaba is valued even more than Facebook $16 billion IPO, according to CNNMoney. The e-commerce site that acts like a mixture of Amazon and eBay serves billions in China, whose economy is booming. For instance, on one major shopping day Alibaba sold $5.7 billion of merchandise alone.

    The site was founded in Hangzhou, China by Jack Ma, but Sunnyvale's Yahoo also owns 24 percent of the company (and the reason its recent earnings report was in the black), CNBC reported. However, once Alibaba files for its IPO, Yahoo's position changes dramatically.

    A strong IPO would bode well for Yahoo because Yahoo is required to sell 40 percent of its stake in Alibaba, when it goes public. That means a potential windfall of $19 billion for Yahoo.

    For investors in Yahoo, this could be an opportunity to gain from a stock buyback or dividend after the IPO, or simply to invest in a rising Chinese company. This also may be signaling to Silicon Valley that other countries and entrepreneurs are giving it needed competition.