concerto

DM'd you

Interesting - how would sales be double-counted between Taobao and Tmall? I thought each merchant operated separate storefronts on each platform?

The 11.8 trillion RMB figure includes sales of non-physical goods. Do Tmall and Taobao sell non-physical goods? I thought Alibaba had other businesses for that kind of consumption (music, movies, games, etc.). If not, the more relevant stat would be the 9.6 trillion RMB figure, which would imply nearly 70% market share. Not impossible, but higher than what I would've expected.

This is the most compelling argument you've made so far. Here is a press release with some numbers. It looks like NBS says China online retail sales in 2020 amounted to 11.8 trillion yen (9.6 trillion = online sales of physical goods, so perhaps this is the more relevant metric?). Either way, these numbers really make Alibaba's 7 trillion GMV claim look questionable. I'll dig into this more later on. But appreciate your pushback here, this issue is definitely not as straightforward as I'd originally thought.

Sometimes I marvel at my ability to single-handedly deflate entire bubbles and vaporize billions of dollars in value by buying a few shares of stock. I'm glad I'm not alone

I mean....to be fair, they're claiming that 550mn people spend < $1000 USD and 190mn people spend > $1000 USD with an overall average of $1400 across all buyers. I'd imagine the actual distribution follows power law and is mostly driven by big spenders with high incomes, attributable to income disparity and higher ecommerce penetration. Just to note - Alibaba probably has higher market share in China ecommerce than Amazon does in the US, which would also drive higher average consumer spend.

China retail marketplaces = Taobao + Tmall, as defined by Alibaba.

@LearningMachine Understood, appreciate the thoughtful response. Also just want to say for the record that I appreciate your willingness to take the other side on this one - it's definitely an unpopular opinion, but as a bull I've been worried looking at the stock price remain stagnant while everybody and their mother seems to be in total agreement. It's helpful to understand the bear case and you've revealed a number of blind spots I didn't know I had on this name. I think we all take a probabilistic approach to assessing risk - every company on earth has a non-zero chance of being at least partly fraudulent, so we stumble around in the dark trying to understand whether there is a significant chance of a company's downside being 100%. You say Alibaba may be 10% to 90% a fraud - I think it's more like 1% or less. For what it's worth, I think 50% is probably too high for ecommerce penetration. JD's latest investor presentation seems to peg the number at ~25%, and there was a footnote in Alibaba's presentation that seemed to agree. Still likely quite a bit higher than the US. The point about GMV per capita is also misleading - in the Investor Day presentation you linked earlier, Alibaba noted they had 90% penetration in developed areas and 45% in less developed areas. Developed areas obviously house more wealth, and China definitely has some issues around income inequality. Combine that fact with 1) your assumptions were high-level at best, and the distribution of GMV based on spend or income is very vague and most likely non-linear with a skew to the upside, and 2) higher relative ecommerce penetration in China, I don't find the numbers all that unbelievable. As a reference point, I think PDD is the absolute floor here - in their Q4 investor presentation, they disclosed an average of 2,115 RMB/year spent by active buyers on the platform. Given PDD is clearly the low-cost alternative to Alibaba operating in less developed regions, I'd say Alibaba's real GMV/user would naturally be much higher. I doubt both PDD and BABA are lying. Your other points revolve a lot around trying to read the tea leaves - you mention the scummy moves by Jack Ma and Joe Tsai (fundamentally dishonest? Perhaps. But publicly listing a massive adjacent business that does a huge amount of transaction volume for a fraudulent affiliate in a very high-profile IPO seems like an irresponsible and unnecessary layer of complexity and risk), the dual-listing in Hong Kong (I thought this was undertaken when Trump outlawed investment in a few select Chinese businesses. I'd imagine management viewed a secondary listing as a good backstop to protect against an unpredictable president with a clearly anti-China agenda), and the lack of consequences in China (honestly you're right on this, I wish there would be some real legal consequences here). As is probably unsurprising to you, I remain unconvinced that we've uncovered anything that points to a fraud being committed here.

I just don't understand why this point is particularly important in evaluating Alibaba. China ecommerce penetration - whether it's 20% or 30% or 50% - is growing quickly, which is a significant factor behind the bull thesis here (it's definitely unlikely to remain stable or contract over the next few years). The Chinese economy is also growing relatively quickly (at least relative to the US). Also, Alibaba definitely operates a real business - it's not a fraud, it makes actual dollars, and it is known to be ubiquitous and dominant in China. I don't think anybody contests those statements (no Chinese person I've met has ever said that Alibaba's properties were small, or rarely used, or unimportant) - so why would they just make up numbers? What would be the benefit of inflating GMV from 6 trillion to 7 trillion RMB? "Greed has no limits" is a true statement - we've seen that statement proven true again and again - but lying at this scale, with a business this dominant, would be pretty absurd with little obvious upside and a huge amount of obvious downside. Also, if they were really just lying about their financials, the recent Chinese regulatory probe probably would have uncovered something. Alibaba is one of the most heavily scrutinized companies in the world, including by regulators, and fradulent financials would be difficult to hide for this long from an all-powerful government that has a clear vendetta against the company. If the objective is to reduce Alibaba's dominance or to hurt Jack Ma, would the CCP be complicit in hiding fraud? I think, at some point, there needs to be some basic level of trust in these companies to have a productive discussion. If the fundamental belief is that Alibaba is a fraud / lying / is publishing dishonest financials, there is not much that we can tell you here that will be able to change your mind. Everything we say will be based on the company's disclosures, public disclosures, etc., all of which can reflect manipulated or dishonest numbers. I agree with you that Chinese divisions of US auditors are unreliable, and that fraud is a persistent and significant problem with Chinese companies, including many of those listed in the US. But Alibaba's been listed for a long time, there has very little serious recent short activity around the name (unlike GSX, which I think was a pretty consensus short that paid off with Archegos), and I'm having trouble finding a motive. Why lie about an obviously exceptional business? How far off would the lies really be from the truth? Other concerns about Alibaba - risk around the take rate, competitive pressure from PDD, potential asset theft by Chinese nationals, etc. - are pretty valid and should be seriously evaluated against the bull case. I think the probability of fraud, however, is just so low that it's not really worth putting as a central point in evaluating this business.

I think higher ecommerce penetration in China is likely a good explanation. Also, the commentary on the slide notes that those 190mn users have a disposable income (not total income) above 36k RMB, which I realize is a pretty minor semantic difference but accounts for some of the discrepancy you note vs. Amazon. I also think Alibaba doesn't really need to exaggerate its numbers. We all know that Taobao and Tmall are very real, very large businesses - inflating GMV numbers at this point seems like unnecessary overkill fraught with massive legal risk.

Got it, I misunderstood. You're right.

I agree and see this (perhaps a less draconian version of this) as the largest regulatory risk to foreign shareholders. I wouldn't be surprised if, at some point, BABA (and perhaps all large Chinese megacap tech businesses) will transition to some sort of hybrid SOE structure where the CCP exercises control and manages the business for the benefit of the Party and not for shareholders. In other words, a structure similar to what the Chinese telcos are today, which has driven consistently mediocre results for the past few years. Asset stripping is probably not the way I'd characterize it though. The Chinese government isn't stealing Ant, they're just regulating it to death in order to destroy Jack Ma. They lack the incentive to do the same to the commerce businesses or the cloud business, which is where the majority of BABA's value comes from.

I don't particularly understand this argument. What is the probability that China would actually do this? If they took down Alibaba because of the VIE structure, then all public Chinese companies would pretty much lose the entirety of their value overnight because they all rely on VIEs. That would be trillions of dollars in market cap vaporized instantly. How would that help the CCP maintain power and authority?

Wouldn't any changes to take rate primarily affect the transaction commissions and not advertising? I think it'd be difficult to force lower customer management revenue as ad placement is based on customer bids. Given most of BABA's commerce revenue comes from ads and not commissions, I think the actual impact might be less than people think (although, obviously, still quite material). I hope the company stops burning so much cash on the adjacent businesses (outside of commerce and cloud) so they can extract some more profitability.

Interesting (but brief) report from Kerrisdale here: https://www.kerrisdalecap.com/wp-content/uploads/2021/03/Tencent-Music-Entertainment-TME.pdf TME was significantly impacted by the Archegos liquidation, shares are now $20 vs. ~$32 before this whole drama started. Company just announced a $1 billion share repurchase. Has anybody done any work on the name / have any perspectives?