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BABA - Alibaba

Liberty

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yadayada Newbie

yadayada

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So they made like 2.1 billion in 2013 before that yahoo payment. They had 41% profit margins in 2013, but this expanded like crazy over the years as well.

 

If you divide all the costs from 2012, by 2011, I get these multiples:

1.5

1.32

1.2

1.28

 

Or total costs of about 4.4 billion$ in 2014. If they grow revenue 80% that would be about 5.5 billion$ in income. Or about 5 billion in net income. If they only grow 60%, that is still 4.4 billion$. After tax about 4 billion$ or so. So it seems anything below 100 billion$ will be cheap probably. .

 

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ScottHall Newbie

ScottHall

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So they made like 2.1 billion in 2013 before that yahoo payment. They had 41% profit margins in 2013, but this expanded like crazy over the years as well.

 

If you divide all the costs from 2012, by 2011, I get these multiples:

1.5

1.32

1.2

1.28

 

Or total costs of about 4.4 billion$ in 2014. If they grow revenue 80% that would be about 5.5 billion$ in income. Or about 5 billion in net income. If they only grow 60%, that is still 4.4 billion$. After tax about 4 billion$ or so. So it seems anything below 100 billion$ will be cheap probably. .

 

This business could be cheap at well north of $100 billion, depending how long it grows at rates similar to what it has recently.

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yadayada Newbie

yadayada

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yeah i guess, there are some risks with CHina tho, and that their CEO seems kinda shady. And some risks FCF is being wasted. Also a bias that I have is that if it really is a multibagger far above a 100 billion$, that would make them worth well over a trillion$. Making them by far the most valuable company on earth. But I guess that is just a stupid bias of me, that i think that somehow cannot happen so easily.

 

To be more clear, amazon and ebay are like 200 billion$ total.  So to think alibaba could be worth over a trillion feels a bit weird. GDP of china is still lower then in the US. Hard to fanthom that alibaba could be worth like 5 times as much 10 years from now then ebay and amazon.

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yadayada Newbie

yadayada

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To do some simple math. Consumer spending in the US is 10 trillion. Alibaba Amazon etc is basicly a toll road on this right? They take a % of this. Amazon and Ebay fair value in a few years according to morning star is about 300 billion together.

 

Population of Europe and the US is about 1 billion total. So maybe total consumer spending of the two combined is like 25 trillion$? (cant find Europe consumer spending.)

 

According to this article in the economist

http://www.economist.com/news/briefing/21595019-market-growing-furiously-getting-tougher-foreign-firms-doing-it-their-way

 

Consumer spending is just 3 trillion$ in China. The blog article says that there is a huge runawy because of their population.

 

Now to make this a nice long term investment at a IPO valuation of 175 billion$, let's say 7 years down the line they have a 1 trilion$ valuation. That would get you a 30% annual return in the upside case. This would mean 50 billion$ of net income with a 20x multiple!

 

Amazon and ebay together do probablyl like less then half that. So on a population of 1.4 billion, and much less disposable income, they do way better then on a population of 1 billion that is much richer and has way more disposable income. Also a large part of China consists of farmers, will they really have that much disposable income 5-7 years down the line? It basicly has to grow from 3 trillion to close to 30 trillion$ in that period, which doesn't seem credible to me.

 

What am I missing here?

 

Also revenue of amazon and ebay together are now like 90 billion$. Divide that by 25000 billion$, that is about 0.04% Funny enough, divide Alibaba's potential 2014 revenue of 11 billion$ by 3000 billion$ and you get the same % lol.

 

It seems costs are lower, and by 2022 consumer spending probably more then doubles to like 7 trillion$. But even if more items are bought online by chinese people, that is still not nearly enough to warrant a 1 trillion $ valuation?

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saltybit Newbie

saltybit

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I don't know about 1 trillion, but Alibaba has some advantages over Amazon and ebay.

[*]less competition with pre-existing retailers (no Walmart, Staples, Macy's, Costco, etc.) I think their F-1 has an infographic about existing retail space per capita in various countries. This means there are less harder "buying habits" to break.

[*]Alibaba has a strong foothold in B2B market. This makes it less dependent on consumer spending.

[*]Alibaba is more than retail. (more so than Amazon,  which does have AWS) They have stakes in Weibo, Youku, Autonavi, and others.

[*]bigger potential for grabbing big share of non-search internet advertising market (high-margin business) [1]

  Alibaba not only collects advertising revenue from its commerce sites, but also partly owns other sites like Youku, AutoNavi maps, weibo etc. which they can monetize and collect user data for advertising. They already have an RTB (real time bidding) service and a DMP (data management platform, used by marketers to slice and segment internet users[2]) As internet advertising becomes bigger in China (they are #23 right now per capita, ~13% of US internet ad spending per capita [3]), Alibaba is poised to get a huge share of the market because they arguably have the best targeting data for marketers, including purchase/shopping data.) In the markets where Amazon and eBay are active, the advertising market is pretty much dominated by Google and Facebook. (search, display, video, social) You can argue that Amazon has the same data, but there are more restrictions in North America and EU about purchase data being used for advertising.

[*]China is probably more amenable to monopolies (if Amazon gets too big, there might be antitrust issues in the future in the US)

[*]Alipay vs Paypal (While Alipay is not officially part of the Alibaba group, it is controlled by Alibaba execs, and Alibaba is looking to reclaim a stake[4])

  - Alipay has more penetration into the Chinese market than Paypal with NA, and payments is a "network effects" industry.

  - Alipay is larger than Paypal already

      - 2013 mobile transactions - 150B vs 27B[5]

      - 2013 overall - 519B[6] vs 180B[7]

 

1. http://www.adexchanger.com/data-exchanges/a-peek-inside-alibabas-ad-business-courtesy-of-its-ipo-filing/

2. http://bluekai.com/data-management-platform.php

3. http://www.emarketer.com/Article/US-Stays-Atop-Global-Ad-Market-Others-Rank-Higher-per-Capita/1010248

4. http://online.wsj.com/news/articles/SB10001424052702303678404579534103980875462

5. http://www.businessinsider.com/alipay-overtakes-paypal-as-the-largest-mobile-payments-platform-in-the-world-2014-2#!KIE6J

6. http://online.wsj.com/news/articles/SB10001424052702303678404579535840686151748

7. https://www.paypal-media.com/about (see 2013 FULL-YEAR FINANCIAL METRICS at bottom)

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yadayada Newbie

yadayada

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I don't know about 1 trillion, but Alibaba has some advantages over Amazon and ebay.

[*]less competition with pre-existing retailers (no Walmart, Staples, Macy's, Costco, etc.) I think their F-1 has an infographic about existing retail space per capita in various countries. This means there are less harder "buying habits" to break.

[*]Alibaba has a strong foothold in B2B market. This makes it less dependent on consumer spending.

[*]Alibaba is more than retail. (more so than Amazon,  which does have AWS) They have stakes in Weibo, Youku, Autonavi, and others.

[*]bigger potential for grabbing big share of non-search internet advertising market (high-margin business) [1]

  Alibaba not only collects advertising revenue from its commerce sites, but also partly owns other sites like Youku, AutoNavi maps, weibo etc. which they can monetize and collect user data for advertising. They already have an RTB (real time bidding) service and a DMP (data management platform, used by marketers to slice and segment internet users[2]) As internet advertising becomes bigger in China (they are #23 right now per capita, ~13% of US internet ad spending per capita [3]), Alibaba is poised to get a huge share of the market because they arguably have the best targeting data for marketers, including purchase/shopping data.) In the markets where Amazon and eBay are active, the advertising market is pretty much dominated by Google and Facebook. (search, display, video, social) You can argue that Amazon has the same data, but there are more restrictions in North America and EU about purchase data being used for advertising.

[*]China is probably more amenable to monopolies (if Amazon gets too big, there might be antitrust issues in the future in the US)

[*]Alipay vs Paypal (While Alipay is not officially part of the Alibaba group, it is controlled by Alibaba execs, and Alibaba is looking to reclaim a stake[4])

  - Alipay has more penetration into the Chinese market than Paypal with NA, and payments is a "network effects" industry.

  - Alipay is larger than Paypal already

      - 2013 mobile transactions - 150B vs 27B[5]

      - 2013 overall - 519B[6] vs 180B[7]

 

1. http://www.adexchanger.com/data-exchanges/a-peek-inside-alibabas-ad-business-courtesy-of-its-ipo-filing/

2. http://bluekai.com/data-management-platform.php

3. http://www.emarketer.com/Article/US-Stays-Atop-Global-Ad-Market-Others-Rank-Higher-per-Capita/1010248

4. http://online.wsj.com/news/articles/SB10001424052702303678404579534103980875462

5. http://www.businessinsider.com/alipay-overtakes-paypal-as-the-largest-mobile-payments-platform-in-the-world-2014-2#!KIE6J

6. http://online.wsj.com/news/articles/SB10001424052702303678404579535840686151748

7. https://www.paypal-media.com/about (see 2013 FULL-YEAR FINANCIAL METRICS at bottom)

yeah 1st is true, it seems they get much more of that consumer spending. Also has to do with lower delivery costs it seems, so you can order low cost items cheaply. But how sustainable is that?

 

Is this alibaba.com? Or also a chinese site, because foreign market seems pretty small and not growing as explosively as the rest.

 

I dont know about autonavi, but the rest of those total market values arent worth much. And Weibo is v dependent on alibaba for income. Youku and weibo maybe worth 50 billion both? And that would make buying stock in either one ofthem just as attractive as in alibaba (because much higher then market currently).

 

Can you reallly make that much money advertising on shopping websites?

 

that is a good point about monopolies

 

this thing about not being part of group, but is controlled, who owns it exactly? And doesnt tencent have a v large stake of the market as well with their payment processor?

 

I don't get the 500 billion number. Isnt ecommerce consumer spending like 250-300 billion$ in china in 2013? I can't find exact numbers, but it was like 250 in 2012. And doesn't tencent have a decent market share in this? Also if it is 500 billion, it is larger then paypal. And paypal made like 1.6 billion$ last year? why did alipay get seperated, and who owns it?

 

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saltybit Newbie

saltybit

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Can you reallly make that much money advertising on shopping websites?

 

Actually this will be possible to do also on 3rd party sites, not just on Alibaba controlled sites.

Alibaba can match ids/cookies in their backend at ad serving time, via ad servers or publishers embedding pixels from alibaba, or doing some id matching between ad exchanges to alibaba.

 

Amazon is also doing this. See: http://www.amazon.com/b/ref=az_adv_ln_dads_aa?&node=6246114011

Reach Amazon customers on Amazon owned and operated sites and on other high quality websites with Amazon Advertising Platform.

 

But they might be more limited in the way they use customer info, due to US/CA/EU's more stringent privacy laws: http://www.businessinsider.com/heres-a-glimpse-inside-amazons-secretive-800-million-ad-business-2013-10

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PatientCheetah Newbie

PatientCheetah

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The consensus IPO mark cap is in the 180 bil range. I ran a few different scenarios. It's very hard to lose money on it if your investment horizon is at least 3 years. Let's hope the past few months have dampened investor enthusiasm so the stock doesn't pop 50%-100% on the first day. The risk/reward doesn't make sense to me if Alibaba's market cap goes to $300+ bil range.

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yadayada Newbie

yadayada

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The consensus IPO mark cap is in the 180 bil range. I ran a few different scenarios. It's very hard to lose money on it if your investment horizon is at least 3 years. Let's hope the past few months have dampened investor enthusiasm so the stock doesn't pop 50%-100% on the first day. The risk/reward doesn't make sense to me if Alibaba's market cap goes to $300+ bil range.

your buying through softbank? That one seems to make the most sense to me now. If you think about 200-300bn$ valuations then you almost get the other business for free (or alibaba depending how you look on it).

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fareastwarriors Newbie

fareastwarriors

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Too bad that we can't short an new ipo. Alibaba will probably buy it for pennies on the dollar once its VC funding runs out. Without a cash cow sugar daddy, e-commerce in China is extremely competitive.

 

Maybe a Tencent buys it to bulk up to fend off Alibaba?

 

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PatientCheetah Newbie

PatientCheetah

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Too bad that we can't short an new ipo. Alibaba will probably buy it for pennies on the dollar once its VC funding runs out. Without a cash cow sugar daddy, e-commerce in China is extremely competitive.

 

Maybe a Tencent buys it to bulk up to fend off Alibaba?

 

Amazon feels like the exception to the rules. It was at the right place at the right time and reached scale to fend off everybody else. A lot Chinese e commerce sites have rich backer so it would be prohibitively expensive to win a price war and the industry would likely to stay fragmented. Both Alibaba and Tencent are toll collectors, not sure what the incentives would be for them to get into a value destructive business.

 

The online retail industry in China is intensely competitive. Our current or potential competitors include (i) major online retailers in China that offer a wide range of general merchandise product categories, such as Alibaba Group, which operates taobao.com and tmall.com, and Amazon China, which operates amazon.cn, (ii) major traditional retailers in China that are moving into online retailing, such as Suning Appliance Company Limited, which operates suning.com, Walmart, which holds a majority interest in yihaodian.com, and Gome Electrical Appliances, which operates gome.com.cn, and (iii) major internet companies that have commenced online retail business, such as Tencent Holdings Limited, which operates yixun.com. We also face competition from online retail companies in China focused on specific product categories and from physical retail stores, including big-box stores like RT-Mart that also aim to offer a one-stop shopping experience.

 

Why would anyone want to go against this group of competitors without any disruptive technology?

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wbr Newbie

wbr

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Btw I think it hasnt been mentioned yet, but VIP Shop (www.vip.com) is a Chinese ecommerce company that has been public for a while now and just keeps beating expectations in terms of revenue growth and profitability. They had 8.2 million customers last quarter which is still pretty much nothing.

 

Somehow I tend to find a smaller company more attractive than the big Alibaba which is limited by the growth of the overall market. Competition might be an issue (and then you would want to own the dominant player for the scale advantage), but only when the market growth slows down. At this point the pie is so huge and growing fast that none of these companies will not grow by a massive amount and as long as demand outweighs supply pricing will be "collaborative" and profitability will be stellar.

 

 

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