Historical Total Return KeyInformation · CLOUD COMPUTING Alibaba Cloud Services is the third...
Transcript of Historical Total Return KeyInformation · CLOUD COMPUTING Alibaba Cloud Services is the third...
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BABA S&P 500
NYSE:BABA|CurrentPrice:$166|IntrinsicValue:$214.40|2-YrTargetPrice:$232.00|ImpliedReturn:39%
CompanyProfile
AlibabaGroupHoldingLimitedisaChinesemultinationalconglomerateholdingcompanyspecializingine-commerce,retail,internet,andtechnology.FoundedonApril4th,1999inHangzhou,Zhejiangthecompanyprovidesconsumer-to-consumer,business-to-consumer,andbusiness-to-businesssalesservices.AlibabaGroupHoldingLimitedenablesbusinessestotransformthewaythesefirmsmarket,sellandoperate,andimprovetheireffectiveness.
HistoricalTotalReturn KeyInformation
Sector:ConsumerDiscretionary
Industry:Retail
IPODate:September19,2014
MarketCapitalization:430.11Bn
52-WeekHigh:$195.50
52-WeekLow:$130.60
ROA:8.31%
ROE:14.69%
Beta:1.23
Recommendation
AlibabaGroupHoldingLimited
§ AlibabahasseentheUnitedStates-Chinatradewaranditsassociatedgeopoliticalfalloutexertdownwardpressureonthestockprice.Fromarelativevaluationperspective,thestockiscurrentlytradingatthelowestEV/EBITDA,EV/SALES,EV/GMV,andP/ElevelssinceitsIPO.Weseethisasauniqueopportunitytobuy.
§ Revenueshavecontinuedtorisethroughthetradewar,drivenbyhigherlevelsofGrossMerchandiseVolume(GMV),anincreaseinthenumberofactivecustomers,andanincreaseintheamountspentpercustomer.
§ AlibabahasaggressivelyexpandedintoSoutheastAsia,theMiddleEast,andNorthernAfrica.Successfulmarketpenetrationwillgivethecompanytheabilitytodoubleitscurrentlymonthlyactiveuserstoover1.8billion.
§ AlibabaCloudServicesisthefastestgrowingsubsidiaryontheplatformandmarginsincreased20%in2019FY.WeexpectmarginstocontinuetoriseastheycontinuetodominatemarketshareinAsia.
InvestmentThesis
October15,2019Analysts:CristianoFernandes,JonathanEbberhart,TimothyDavis
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CompanyBreakdown
Overview
AlibabaGroupHoldingLimitedintends“tomakeiteasytodobusinesseverywhere”.Thecompanyaimstobuildthefutureinfrastructureofcommercethroughthreefundamentalprinciples:“Meet@Alibaba–Weenablecommercialandsocialinteractionsamonghundredsofmillionsofusers,betweenconsumersandmerchants,andamongbusinesseveryday,Work@Alibaba–Weempowerourcustomerswiththefundamentalinfrastructureforcommerceandnewtechnology,sothattheycanbuildbusinessesandcreatevaluethatcanbesharedamongourdigitaleconomyparticipants,andLive@Alibaba–Westrivetoexpandourproductsandservicestobecomecentraltotheeverydaylivesofourcustomers.”Thecompany’sbusinessesarecomprisedofcorecommerce,cloudcomputing,digitalmediaandentertainment,andinnovationinitiatives.Inaddition,AntFinancial,anunconsolidatedrelatedparty,providespaymentandfinancialservicestoconsumersandmerchantsonallAlibabaplatforms.Theyhavebuiltwhattheyrefertoasa“DigitalEconomy”thatconsistsofconsumers,merchants,brandsretailers,third-partyserviceproviders,strategicalliancepartnersandotherbusinesses.Alibabaleveragesitsownsubsidiariestobuttressthedigitaleconomyandincreasetheperformanceofadjoiningbusinessesthroughtechnologicaladvancementsandsynergies.
CORECOMMERCEAlibababreaksdowncorecommerceintoretailcommerce,bothinChinaandinternationally,andwholesalecommerce,bothinChinaandinternationally.AlibabaisthelargestretailcommercebusinessintheworldbasedonGrossMerchandiseVolume(GMV)asofMarch31st,2019.Approximately66%oftotalrevenuesfor2019FYwerefromretailcommerceinsideofChina.‘NewRetail’initiativeswereintroducedtoreengineerthefundamentalsofretail,transformingoperationsandthesellinglandscape.Thegoalistoconvergeonlineandofflineretailbyleveragingdigitizedoperatingsystems,in-storetechnology,supplychainsystems,consumerinsights,andmobileecosystems.AlibabahasmultipleglobalretailmarketplaceswhichenableconsumersfromaroundtheworldtobuydirectlyfrommanufacturersbothinChinaandinternationally.CoreCommercesawa41%year-over-yearincreaseinrevenuesfor2019FYand,aftertherecentacquisitionof33%ofJackMa’sAntFinancial,willhaveover740millionactiveusersinitsDigitalEconomytofuelfuturerevenuegrowthin2020FY.Throughmulti-brandstrategiestoglobalize,Alibabahassuccessfullyintegratedinternationallogisticsandpaymentsolutionsinfrastructuretocontinuetogrowitsinternationalbusiness.Thecompanycurrentlyhas130millionactiveconsumersoutsideofChina.
Lazada:Adominantretaile-commercecompanyoperatinginSoutheastAsiaincludingSingapore,Indonesia,andthePhilippines.
Daraz:FoundedinIndia,itisane-commercecompanycurrentlyoperatinginIndia,Pakistan,Bangladesh,SriLanka,Myanmar,andNepal.
Trendyol:Amobilee-commercecompanybasedinTurkeythatistheleadingplatforminTurkey,theMiddleEast,andNorthAfrica.
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CompanyBreakdown
CLOUDCOMPUTINGAlibabaCloudServicesisthethirdlargestInfrastructure-as-a-Service(IaaS)andinfrastructureUtilityServicesproviderbyrevenueduring2019FY.ItisalsothelargestproviderofpubliccloudservicesinChina,offeringacompletesuiteofcloudservicestoChineseenterprises.Thisconsistsofelasticcomputing,database,storage,networkvirtualizationservices,largescalecomputing,cybersecurity,managementandapplicationservices,bigdataanalytics,machinelearning,andIoTservices.Therewas76%year-over-yearrevenuegrowthforCloudComputingin2019FYand66%year-over-yearrevenuegrowthinthefirstfiscalquarterof2019.Thecompanyisnotfocusingontheprofitabilityofcloudcomputing,butratherthecapabilities.IthasmadeacquisitionstobetteritsperformanceandmarketshareinChina.Alibabaisrelyingonbigdata,substantialquantitiesofwhichaggregatedwithinandusingtheircloudcomputingtechnology,tonotonlybettertheirbusiness,butoutmatchcompetitors.CloudComputingIskeytotheexpansionoftheDigitalEconomy.AlibabahasbeenanointedbytheChinesegovernmenttoleadthesmartcityinitiativeandhybridcloudsystemimplementationrequiredtoadvancethemodernizationofthestate.
Kanbox:Anetworkdiskandsynchronizationtoolusedforfilemanagementandbackup.Therearenotimeorplacelimitations;theonlynecessityisinternetconnectivity.
CloudComputingProgress:ThecontinuedexpansionofcloudcomputingservicesinChinaandabroadwillincreasetheamountofdatahostedbytheAlibabasystemaswellasincreasethenumberofjurisdictionsinwhichtheyhaveinformationtechnologysystems.Bigdataisacatalystforthe‘NewRetail’initiative.Alibabahasdevelopedanddistributedadataanalyticsplatformtoitscustomersthatcanhandlecomplexcomputingtasksofmillionsofgigabytesofdataperday.Thisprovidesdeepdatainsightstosmallerretailersontheplatformthatcannowusethisdaytobetterruntheirbusiness,increasingtheirprofitabilityandthatofAlibaba.ProductsincludeMaxCompute,anofflinedatastorageandcomputingserviceusefulforcustomersinlow-tiercities,Blink,areal-timedatastorageandcomputingplatform,andOneData,adataintegrationandmanagementsystem.AlibabahasbeencalledonbytheChinesegovernmenttoleadtoleaditssmartcityobjective.With120,000peoplebysquaremile,thecityofShanghaidesperatelywantstomaximizeitspopulationpotentialwhilemaintainingpeakefficiency.AlibabahasusedartificialintelligencealgorithmstogeneratebusservicesrunningonoptimalrouteswhileallowinguserstofindtheirbestindividualroutesthroughtheAliPayapplication.IfAlibaba’sinitialattemptsprovesuccessful,theChinesegovernmentmaycontractthecompanytoleadtheobjectiveinhospitals,energyinfrastructure,andeducation.
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CompanyBreakdown
DigitalMedia&EntertainmentAlibabaseesdigitalmediaandentertainmentasanaturalextensionofthebusinessthatwillcaptureconsumptionoutsideoftheircorecommerceandcloudcomputingbusinesses.Thedataaggregatedviacorecommerceallowsthefirmtocreateanddistributerelevantcontenttousers.Originalcontentandlicensedshowsareseenasasuccessfulwaytopenetratebothlower-tiercitiesandnewmarketsthroughoutSoutheastAsia,potentiallyloweringmarketingcostsinthelongterm.TheinternalinfrastructureincludesYouku,thethirdlargestonlinevideoplatforminChinaintermsofmonthlyactiveusers,andDamai.cn,anentertainmentticketingplatformthatprovidesliveperformanceandshowtickets.QuestMobileandUCBrowserserveasthedistributionplatformsforAlibabadigitalmediaandentertainment.Therewasa23%year-over-yearrevenuegrowthfor2019FYasAlibabaislookingforwaystobattleformarketshare.Alibabainvestedin,coproduced,anddistributedeightofthetoptenbest-sellingmoviesinChinawhilefollowingits“small,true,big,andpositive”guidelines.
Youku:YoukuhasnotedthatitsusersareshowingastronginterestinclassicT.V.showsdatingback10-15yearsago.UsingdataavailabletothecompanythroughAlibaba’sdigitaleconomy,itpurchasedtherightstoFriends,andrelaunchedtheshowinHD.ItisalsoventuringintorealitytelevisionasitlaunchedStreetDanceofChina.
InnovationInitiativesAlibabahasmadeittheirprerogativetodevelopnewservicesandproductsthatmeettheneedsoftheconsumerbase,improveefficiencyinthedailylivesofcustomers,andstrengtheningsynergiesbetweenthebusinesseswithinthedigitaleconomy.Revenuefrominnovationinitiativessawayear-over-yearincreaseof42%in2019FY.ThisgrowthwasachievedafterthereclassificationofFreshippo,previouslyreportedunderthissegmentuntilitsrevenueoutgrewincubationstageparameters.
Amap.com:Amapisthelargestproviderofmobiledigitalapplicationnavigationandreal-timetrafficinformationinChinabymonthlyactiveusers.Itempowerscompanieswithinthedigitaleconomy,includingretailmarketplacesandAlipay.
Dingtalk:DingtalkisthelargestbusinessefficiencyapplicationinChinabymonthlyactiveuser.Itservesenterprisesandorganizationsofvarioustypesandsizeswithunifiednetworkcollaborationservicesandintelligentmobileworkplaces.
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BABA S&P 500
TradeWar
Who?UnitedStates&China When?January22nd,2018-Present Why?AmericanTradeDeficitHistorically,DonaldTrumphaslongbeenaproponentoftakingaggressivemeasurestodecreasethetradedeficitbetweentheUnitedStatesandChina.HecampaignedontheideaholdingtheChineseGovernmentaccountableforwhathelabeledashighlyquestionabletradepractices.TheinauguraltariffwasannouncedonJanuary22nd,2019,atariffonsolarpanelsandwashingmachines.Sincethentherehavebeenadditionaltariffsimposedbybothcountriesandothersannouncedforthefuture.
KeyDates:
• January22nd,2018–Tariffannouncedonsolarpanelsandwashingmachines.• March22nd,2018–DonaldTrumpaskstheUnitedStatesTradeRepresentatives(USTR)toinvestigate
applying$50-60millionintariffsonChineseGoods.• July6th,2018–Tariffson$34billionworthofChinesegoodsgoescameintoeffect.• September17th,2018 –TheUnitedStatesannounceda10%tariffon$200billionworthofChinese
goods,beginningonSeptember24th,2018andincreasingto25%bytheendoftheyear.• May5th,2019-DonaldTrumpannouncestheprevious10%tariffson$200billionofChinesegoodswill
beuppedto25%onMay10th.• June29th,2019–DonaldTrumpsaysheandXiJinpingagreedtoa“truce”inthetradewarafter
extensivetalks.• September27th,2019–ThecurrentadministrationisallegedlyconsideringdelistingChinese
companiesfromAmericanstockexchanges.
WhatdoesthismeanforAlibaba?TheUnitedStates-ChinatradewarhasputdownwardpressureonthestockpriceofAlibaba.ThetariffsannouncedbythecurrentUnitedStatesadministrationarenotthethreattoAlibaba.ThegeopoliticalfalloutduetothetradewarhassulliedinvestorsentimenttowardsChinesecompaniesandthathasbeenmostdamaging.TherearefearsthatthecurrentadministrationwilltakeaggressivemeasurestoinhibitthegrowthofChineseretailersintheUnitedStates,thelargestofwhichbeingAlibaba.Alibabasees88%ofitsrevenuesgenerateddomesticallyandthemajorityoftheother12%beingfromotherSoutheastAsiancountries.Intheworstcasescenario,Alibaba’sabilitytooperateintheUnitedStatesishindereddramatically,thecompanywillstillgrowitsalreadydominantmarketshareinAsia,theMiddleEast,andNorthernAfrica.Weexpectthetradewartocontinueinto2020,butnoactionstobetakenonpartoftheUnitedStatesgovernmenttohinderoperationsofAlibaba.Thus,Alibabaisundervaluedwithnorealthreattothehealthofthecompany.
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Number of Active CustomersYoY
15% CAGR
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2025F
Number of Active CustomersYoY
57,36163,241
68,99376,121
82,461
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Chinese Wage Growth (CNY)
15 % CAGR
85.82%
6.56%6.39% 1.24%
2019FYCoreCommerce
CloudComputing
DigitalMediaandEntertainmentInnovationInitiatives
85.29%
8.24%5.99%
1.17%2020FY
CoreCommerce
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RevenueBreakdown
CoreCommerce
Alibaba’scorecommerceismainlydrivenbyusergrowth.Over70%ofnewcustomerscomefromlessdevelopedareasdomesticallylabeled‘Low-tiercities’withAlibabaachieving50%userpenetrationoftheapplicablepopulationintheseareasoutofanover800mtotalpopulation.Alibaba’suseracquisitionhasbeeneffectiveagainstitscompetitorsduetosynergiesfromitsecosystem,leveraginglocalservicesandAliPaytoacquirenewcustomersacrossitsvariousbusinesses.Ofcorecommerce,domesticretailaccountedfornearly77%ofrevenue.China’spercapitadisposableincomegrewnominallyup8.8%YoYforthefirsthalfof2019.
AhighernumberofactivecustomershascontributedtowardsincreasinggrossmerchandisevolumesacrossAlibaba’splatforms.Ontopofthat,theboomingofChina’smiddle-classreflectsinhigherrevenuespercustomeramidanupgradeofChina’sconsumerbase.Alibabaisextremelywellpositionedtoexpanditsmarketshareasweexpecte-commercesalestocontinuetosurgeinthefollowingyears.
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Infiscalyear2015Alibabahad255millionactivecustomersacrossitsplatformstransactingover$96billiondollarsofgrossmerchandisevolume.
Thesefiguresjumpedto654millionactivecustomerstransactingover$800billionofGMVin2019FY.
Increasedlevelsofuserengagementarestronglytiedtohigherlevelsofmobileactiveusers.
GrossMerchandiseVolume
MobileMonthlyActiveUsers
Since2015Alibabaexpandeditsnumberofmobileactiveuserstremendously.Thecurrentmarketpenetrationof721millionmonthlyactiveusersaccountsformorethanhalfoftheChinesepopulation.ThisstandalonestatisticgivesAlibabaownershipofoneofthemostvaluableassetsintoday’sworldwhichisdata.Oncethecompanyenjoyshighsynergieswithinitsbusinesses,ithasleveragedonitsbusinessmodeltodirectuserstodifferentbusinessandconvertthemintocustomers.
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RevenueBreakdown
76.6%
3.1%
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2.5%4.6%
5.6% 1.6%
Core Commerce BreakdownChinaretail
ChinaWholesale
InternationalRetail
InternationalWholesale
Caianiao
LocalConsumerServices
Others
ChinaRetailsawa31%year-over-yeargrowthin2019FYonthebackofgrowingconsumerspendingfueledbywagegrowthandan8.8%year-over-yearincreaseindisposableincomereaching$2227amongChinesecitizens.Lower-tiermarketshada2018-2019FYaveragerevenueperuser(ARPU)fromnewcustomersexceeding$281annually.Basedontheaforementioneddisposableof$2227,newcustomersspendinexcessof10%oftheirdisposableincomeonAlibaba’sdomestice-commerceplatform
ChinaWholesalesawanincreaseof39%year-over-yearforthe2019FYdueto910,000memberspayinganannualsubscriptionfeetoreachcustomerswiththeoptionofadditionalservicessuchasdataanalytics,storefrontmanagementtools,andcustomermanagementservices.Furthergrowthwillbedrivenbyanincreaseinaveragerevenuefrompayingmembers.
InternationalRetailsawanincreaseof38%year-over-yearforthe2019FYprimarilyduetoincreasesinrevenuefromLazada,theconsolidationofTrendyol,andanincreaseinrevenuefromAliExpress.
InternationalWholesalerevenuesincreasedby23%year-over-yearin2019FY.Thegrowthfollowedanincreaseintheamountofusersandanincreaseintheaveragerevenueperuser.
CainiaoLogisticsServicessawanincreaseinrevenuesof106%year-over-yearduetotheeliminationofinter-companytransactions.Logisticsrevenueisdrivenbysupplychainmanagementsolutionsaswellason-demanddeliveryservicesfromEle.me.
LocalConsumerServicesgeneraterevenuethroughfeesfromtheprovisionofdeliveryservicesandotherservicesprovidedbyouron-demanddeliveryandlocalservicesplatformEle.me.Revenueswereconsolidatedin2019FY,growthrateswillberecognizedin2020FY.
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Tencent
AWS
Baidu
ChinaTelecom
Cloud Services Market (China)
RevenueBreakdown
CloudComputingStandingasthemainproviderofcloudcomputingservicesinAsia,AlibabaClouddominatesthemarketintheregioncurrentlyholding47%ofmarketshareinChina.Alibabasawthenumberofpayingcustomerstoincreasefrom263,000in2014toover1,400,000in2018,whiletheaveragerevenueperpayingcustomerjumpedby237%duringtheperiod.
Revenuesfromcloudcomputingservicesareprimarilygeneratedfromenterprisecustomersbasedonthedurationandusageofservices.Alibabahasenjoyedbothlongerusageofservicesbyitspayingcustomersaswellashigherspendingonmultipleservicesincludingmorecomplexofferings,suchasnetworkvirtualizationanddatabaseservices.
§ Hanguang800
InSeptember2019,thecompanyrevealeditsproprietaryhigh-performanceARinferencechipHanguang800.Thechipspecializesintheaccelerationofmachinelearningtasks,thenewtechnologycancutdowncomputingtasksthatwouldtakeanhourdowntofiveminutesaccordingtoAlibaba.TheHanguang800willbeusedinAlibabaCloud,thiswillallowthecompanytofurtherincreasesalesofnewandbettercloudservicestocustomersofitsfastest-growingbusiness
Outlook
WiththeglobalcloudservicesmarketexpectedtogrowataCAGRof17.6%upuntil2020,AlibabaCloudstillhavemuchroomtoexpanditsbusinessbothinChinaandinternationally.DespitefiercecompetitionfromTencentandAmazon,theleadingcloudcomputingservicesproviderinAsiahasproventobetheprincipalchoiceofcustomersintheregion.Lookingforwardweseeanincreaseddemandforfaster,cheaperandaccessibledatastorageservices.
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RevenueBreakdown
DigitalMediaandEntertainmentDigitalMediaandEntertainmentsawa15.04%year-over-yearincreaseinrevenuesforthe2019FY.Basedonourprojectionthrough2020FY,wepredictthatDigitalMediaandEntertainmentwillcontinuetoincreaseitsrevenuesyear-over-yearbutdecreaseasapercentageoftotalrevenuesduetotherapidgrowthofAlibabaCloudServices.Themaindriversforrevenuearecustomermanagementservicesfeesandmembershipsubscriptionfeesusuallygeneratedfrombusinessandadvertisingagencies.BothofwhicharedirectlycorrelatedtotheamountofactiveusersontheAlibabaplatform. Revenue ($ Millions)
InnovationInitiativesSinceinception,AlibabahastakenmarketsharebypresentingtheChineseconsumerwithnew,innovativeideasthathave“madeiteasiertodobusinesseverywhere”.Alibabaisdevelopingnewserviceofferingsandproductsthatmeettheneedsandimproveefficiencyinthedailylivesoftheircustomers.InnovationInitiativessawa32.63%year-over-yearincreaseinrevenue.Alibabaincubatesthesecompanies,suchasDingtalkandAmap.com,andshapestheminawaythatcreatesandmaintainssynergieswithinthedigitaleconomy.FreshippowasoriginallyanInnovationInitiative,butwasmovedtocorecommerceafteritsrevenuessurpassedInnovationInitiativeparameters. Revenue ($ Millions)
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5-Year Discounted Cash Flow 2020F 2021F 2022F 2023F 2024F 2025FEBIT 13,243 15,536 18,109 20,906 23,669 26,641Tax Rate 19.2% 19.2% 19.2% 19.2% 19.2% 19.2%EBIT(1-Tax) 10,705 12,558 14,638 16,898 19,132 21,534
(+) Depreciation & Amortization 5,914 6,385 6,852 7,447 8,230 9,084(+) Change in Net Working Capital 13,237 9,541 10,495 11,544 12,699 13,968(+) Stock Comp 5,793 6,438 7,140 8,398 9,921 11,157(-) CapEx (4,886) (5,501) (6,454) (6,170) (6,735) (5,753)
Unlevered FCF 30,764 29,421 32,671 38,117 43,247 49,992
Discount Period - Year 0.5 1.5 2.5 3.5 4.5 5.5PV of UFCF 29,213 25,192 27,975 26,538 27,150 28,299
Terminal Value CalculationTerminal Value of Ufcf: $410,634Sum of PV of Ufcf $164,365PV of Terminal Ufcf $394,660
Enterprise Value $559,026(-) Debt $20,011(+) Cash $28,308Equity Value $567,323Intrinsic Value $214.40
AssumpitonsTerminal Grow th Rate 3.75%Beta 1.23CAPM 8.32%Tax Assumption 19.17%WACC 10.90%EV Today 414,038$ Shares Outstanding 2,646
Valuation
IntrinsicValueCalculations
Undervaluation
TheUnitedStates-ChinatradewarhasincreasedgeopoliticaltensionbetweenbothcountriesandexerteddownwardpressureonAlibaba’sstockprice.InvestorsentimenttowardsChinesecompanieshasbecomenegative,preventingthestockpriceofAlibabatoriseinrelationtoitsimpressivefinancialperformancethroughthetradewarthusfar.Thishascreatedauniquebuyopportunity;thefundcouldseea29%returnfromourcalculatedintrinsicvalue.
RevenueBreakdown
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Catalysts
UserGrowthWhileAlibabaexpandsintothelower-tiercitiesinChinaandthroughouttherestofSoutheastAsiaitwillbefocusingonuseracquisition.StrongerthanexpectedmarketpenetrationpairedwiththeadoptionlocalbusinessesintothedigitaleconomywillboostrevenuegrowthandexposurefortherestofAlibaba’splatform.Alibabahasacquirede-commercecompaniesspanningSoutheastAsia,theMiddleEast,andNorthAfrica.ThequickerAlibabacangrowitsuserbaseintheseareasthefastitcanacquiremarketshare.BetweenIndia,Pakistan,Bangladesh,Turkey,andIndonesiaAlibabawillhavethepotentialtoreachover1.97billionpeople.Withcurrentmonthlyactiveusers(MAU)sittingat960million,afterthe33%stakeacquiredinAntFinancial,itisastrongpossibilitythatAlibabacouldobtainover1.5billionMAU.
ConsumerSpendingIncreasedChineseconsumerspendingincombinationwithrapidlydevelopingconsumerisminagrowingChinesemiddleclasspresentsgreatdomesticgrowthopportunityforAlibaba.Sincetheinitialpublicoffering(IPO)ofAlibaba,Chineseconsumerspendinghasaveragedan8.01%year-over-yearincrease.Theincreaseinconsumerspendingisdirectlycorrelatedtowagegrowthwhichhasseenanaverageyear-over-yeargrowthrateof9.50%sinceIPO.Chinesecitizens,especiallythemiddleclass,aremakingmoremoneyandarewillingtospendalargerpercentofitonretail.
CloudServicesAlibabaCloudServiceswillconsistentlybethefastestgrowingbusinesswithintheAlibabaplatform.Managementhasfocusedongrowthandlessonprofitability.Theyseecloudservicesasanavenuetoexploituntouchedrevenuestreamsnotavailabletoanyretailplatform.Fixed-AssetInvestmentcontinuestoriseasbusinessesarelookingtotakeadvantageofgrowthopportunities.Evenwithoutanemphasisonprofitability,themarginforAlibabaCloudComputingserviceswas-5%in2019FY,aprofitmarginincreaseof20%year-over-year.
Risks
ChineseMacroeconomicConditionsIfmacroeconomicmarkerssignaladowntrendintheChineseeconomythenegativesentimentwillspreadandconsumerspendingwillseeasharpdecline.BothmerchantsandconsumerswillminimizetheirspendingandthiswillhurtAlibabaonbothfrontsastheydobusinesswithotherenterprisesandindividualconsumers.
WeakMarketPenetrationIfAlibabafailsinitsattempttopenetratenewmarketsduringitsexpansionthroughoutSoutheastAsiaitwillseeslowerthananticipatedgrowth.Thecostofclientacquisitionwillincreaseonthebackoffailedexpansionattempts,hurtingmargins.
GovernmentRegulationAnunfavorableturningovernmentregulationscouldresultinasignificantonAlibaba’soperations.Over80%ofAlibaba’sdomesticretailistransactedthroughAlipay.IncreasedregulationcouldnegativelyimpactAlibaba’smobileplans.
CompetitorsThemaincompetitorsofAlibabaareJd.com,Baidu,andTencent.Themostsignificantthreattothe continued success of Alibaba’s e-commerce and local services businesses is JD.com. They specializes inspecificproductsandmarketspotentiallyresultingindecreasedgrowthorincreasedmarginpressures.
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DanielZhang,ChiefExecutiveOfficerDanielZhangjoinedAlibabainAugust2007asChiefFinancialOfficerofTaobaoMarketplace.PriortojoiningAlibaba,hereceivedabachelor’sdegreeinfinancefromShanghaiUniversityofFinanceandEconomics.HeiscurrentlyamemberofAntFinancial’sinvestmentcommitteeandthechairmanofSunArt.
MaggieWu,ChiefFinancialOfficerMaggieWujoinedAlibabainJuly2007astheChiefFinancialOfficerofAlibaba.com.AfterthreeyearsinthisroleshewasvotedbestCFOinFinanceAsia’sannualpollforbestmanagedcompanies.In2018,shewasnamedontheForbes100MostPowerfulWomenList.ShehasherACCAdesignationandabachelor’sdegreeinaccountingfromCapitalUniversityofEconomicsandBusiness.
JeffZhang,ChiefTechnologyOfficerJeffZhanghasservedastheChiefTechnologyOfficersinceApril2016andpresidentofAlibabaCloudIntelligencesinceNovember2018.HejoinedAlibabainJuly2004andhasheldmultiplemanagementpositions,leadingTaobaoMarketplaces’stechnologyteams.ZhangstudiedcomputerscienceatZhejiangUniversity.
JessieZhang,ChiefRiskOfficer
JessieZhanghasbeentheChiefRiskOfficersinceDecember2017andisresponsiblefordataandinformationsecurityacrossallAlibabaplatforms.ShetookoverasChiefPlatformGovernanceOfficerinDecember2015.SheservedasthedeputychieffinancialofficerfromNovember2013toJune2016.Zhangreceivedherbachelor’sdegreeinaccountingfromNortheasternUniversityinChina.
ChrisTung,ChiefMarketingOfficerChrisTungjoinedAlibabaasChiefMarketingOfficerinJanuaryj2016.HewasthepresidentofAlimamaforayear,betweenNovember2017andNovember2018.HeiscurrentlyadirectorofRuhnHoldingLimitedandreceivedabachelor’sdegreeinelectricalengineeringfromNationalTaiwanUniversityandamaster’sdegreeinindustrialengineeringfromtheUniversityofMichigan,AnnArbor.
Management
14
DuPontAnalysis 2015FY 2016FY 2017FY 2018FY 2019FY 2020FNetIncome 3,923 11,056 5,989 9,791 11,955 13,176Revenues 12,293 15,686 22,994 39,898 56,152 71,228NetProfitMargin 31.9% 70.5% 26.0% 24.5% 21.3% 18.5%AveragetotalAssets 48,864 65,076 93,978 129,064 157,310Turnover 0.32 0.35 0.42 0.44 0.45AverageEquity 32,047 42,677 58,116 80,130 96,770EquityMultiplier 1.62 1.46 1.58 1.64 1.59 1.60ROE 33.05% 14.52% 17.12% 14.69% 13.38%KeyRatios 2015FY 2016FY 2017FY 2018FY 2019FY 2020FProfitability%GrossMargin` 68.72% 66.03% 62.42% 57.23% 45.09% 47.30%SG&AtoSales 38.36% 37.26% 32.06% 29.53% 29.94% 28.84%OperatingMargin 30.36% 28.77% 30.36% 27.70% 15.15% 18.46%ROA 9.52% 19.56% 8.13% 8.56% 8.31% 7.71%Valuation 2015FY 2016FY 2017FY 2018FY 2019FY 2020FEnterpriseValue 189,325 186,575 263,808 444,998 462,424 414,038EBIT 3,732 4,513 6,981 11,050 8,506 13,152EBITDA 4,444 5,552 9,058 14,560 14,030 19,054EV/EBIT 50.73 41.34 37.79 40.27 54.36 31.48EV/EBITDA 42.60 33.61 29.12 30.56 32.96 21.73EV/SALES 15.40 11.89 11.47 11.15 8.24 5.81EV/GMV 1.95 1.62 0.48 0.58 0.54 0.41
P/E 50.81 17.52 42.69 44.73 36.06 29.37Price(yearend) 84.85$ 79.00$ 108.85$ 178.91$ 182.45$ 166.00$EPS 1.67$ 4.51$ 2.55$ 4.00$ 5.06$ 5.65$
Liquidity 2015FY 2016FY 2017FY 2018FY 2019FY 2020FCurrent Ratio 3.56 2.58 1.95 1.89 1.30 1.45Cash Ratio 2.73 2.05 1.53 1.47 0.91 1.11Cash & ST Inv/Current Assets 3.08 2.14 1.56 1.51 0.93 1.11CFO/Current Liabilities 1.04 1.09 0.86 0.92 0.73 0.76
Leverage 2015FY 2016FY 2017FY 2018FY 2019FY 2020FLT Debt/Total Equity 32.15% 21.43% 23.93% 27.39% 18.38% 12.95%LT Debt/Total Capital 24.10% 17.40% 18.61% 21.27% 15.05% 11.14%LT Debt/Total Assets 19.81% 14.67% 15.16% 16.67% 11.59% 7.80%Debt/Total Assets 20.59% 15.85% 18.10% 17.51% 13.92% 9.76%Debt/Total Equity 33.41% 23.15% 28.57% 28.77% 22.07% 16.20%Debt/Total Capital 25.04% 18.80% 22.22% 22.34% 18.08% 13.94%
Appendix
15
CONSOLIDATED INCOME STATEM
ENT2015FY
2016FY2017FY
2018FY2019FY
2020E2021F
2022F2023F
2024F2025F
Revenue$12,293
$15,686$22,994
$39,898$56,152
$71,721$89,486
$109,932$133,824
$161,041$191,216
Growth (%
)28%
47%74%
41%28%
25%23%
22%20%
19%
Cost of Goods Sold(3,845)
(5,328)(8,642)
(17,065)(30,833)
(37,794)(47,602)
(59,028)(72,526)
(88,082)(105,542)
Gross Profit8,448
10,35814,352
22,83325,319
33,92841,884
50,90461,298
72,95985,674
Gross M
argin (%)
68.7%66.0%
62.4%57.2%
45.1%47.3%
46.8%46.3%
45.8%45.3%
44.8%
Operating Expenses:
Product development expenses(1,720)
(2,138)(2,479)
(3,628)(5,578)
(6,717)(8,604)
(10,845)(13,537)
(16,692)(20,298)
Sales and marketing expenses(1,373)
(1,753)(2,370)
(4,352)(5,928)
(7,715)(9,805)
(12,265)(15,198)
(18,612)(22,481)
General and administrative expenses(1,258)
(1,428)(1,778)
(2,589)(3,708)
(4,333)(5,764)
(7,293)(8,845)
(10,643)(12,245)
Amortization of intangible assets(337)
(455)(744)
(1,135)(1,599)
(1,793)(2,058)
(2,309)(2,676)
(3,221)(3,824)
Impairment of goodwill and intangible assets
(28)(71)
(79)(126)
(116)(82)
(135)(123)
(184)
Operating income
$3,732$4,513
$6,981$11,050
$8,506$13,243
$15,536$18,109
$20,906$23,669
$26,641
Operating M
agin (%)
30%29%
30%28%
15%18%
17%16%
16%15%
14%
Interest and investment income, net1,525
8,1041,244
4,8626,572
3,8004,175
4,5885,043
5,5436,094
Interest expense(443)
(301)(388)
(568)(773)
(651)(537)
(451)(339)
(202)(160)
Other income, net401
319884
66332
--
--
--
Income before incom
e tax and share of results of equity investees$5,215
$12,635$8,721
$16,007$14,337
$16,392$19,174
$22,247$25,609
$29,010$32,575
Income tax expenses(1,035)
(1,310)(2,002)
(2,901)(2,466)
(3,142)(3,675)
(4,264)(4,909)
(5,561)(6,244)
Share of results of equity investees(257)
(269)(730)
(3,315)84
--
--
--
Net income
$3,923$11,056
$5,989$9,791
$11,955$13,250
$15,498$17,982
$20,700$23,449
$26,331
Net income attributable to noncontrolling interests(9)
27356
4271,140
1,4341,790
2,1992,676
3,2213,824
Net income attributable to Alibaba Group Holding Limited3,914
11,0836,345
10,21813,095
14,68417,288
20,18123,377
26,67030,155
Accretion of Convertible Preference Shares(2)
--
(17)(42)
--
--
--
Dividends accrued on Convertible Preference Shares(16)
--
--
--
--
--
Net income attributable to ordinary shareholders
$3,896$11,083
$6,345$10,201
$13,053$14,684
$17,288$20,181
$23,377$26,670
$30,155
Profit Margin (%
)31.7%
70.7%27.6%
25.6%23.2%
20.5%19.3%
18.4%17.5%
16.6%15.8%
Earnings per share/ADS attributable to ordinary shareholders
Basic | (per share)$1.67
$4.51$2.55
$4.00$5.06
$5.68$6.74
$7.80$8.95
$10.12$11.34
Diluted | (per share)$1.56
$4.33$2.47
$3.91$4.97
$5.60$6.64
$7.68$8.82
$9.97$11.18
Weighted average num
ber of shares
Basic2,337
2,4582,493
2,5532,580
2,5842,566
2,5892,612
2,6352,658
Diluted2,500
2,5622,573
2,6102,623
2,6232,605
2,6282,651
2,6742,698
EBITDA$4,444
$5,552$9,058
$14,560$14,030
$19,157$21,921
$24,962$28,353
$31,899$35,725
16
CONSOLIDATED BALANCE SHEETS $ in Millions2015FY
2016FY2017FY
2018FY2019FY
2020F2021F
2022F2023F
2024F2025F
Current assets:
Cash and cash equivalents$17,453
$16,566$20,882
$31,775$28,308
$49,483$65,419
$88,817$113,921
$146,107$186,489
Short-term investments2,282
729437
970486
228217
206195
186176
Restricted cash and escrow receivables371
209386
5451,269
1,3851,485
1,9892,414
3,0843,443
Investment securities590
648589
7681,479
1,3511,486
1,6341,798
1,9782,175
Prepayments, receivables and other assets2,094
2,6404,222
6,8918,730
12,19915,220
18,69822,762
27,39132,524
Total current assets22,790
20,79226,516
40,94940,272
64,64683,827
111,344141,091
178,745224,808
Investment securities2,357
4,5584,569
6,08923,407
27,03429,737
32,71135,982
39,58043,538
Prepayments, receivables and other assets659
9321,169
2,6944,175
4,3865,472
6,7228,183
9,84711,692
Investments in equity investees5,465
14,18417,487
22,27112,584
12,46912,470
12,47112,472
12,47312,474
Property and equipment, net1,474
2,1142,936
10,60013,713
14,47715,651
17,56218,961
20,68621,179
Land use rights501
446682
1,4950
--
--
--
Intangibles & Goodwill7,825
13,49520,271
30,22849,650
48,36848,252
48,16948,035
47,91247,728
Total assets$41,206
$56,521$73,630
$114,326$143,801
$171,379$195,409
$228,979$264,723
$309,244$361,419
Current liabilities:Short-Term debt
321667
2,164961
3,3473,346
1,6254,870
2,33683
831Income tax payable
441433
8902,181
2,6352,923
3,6474,480
5,4546,563
7,793Escrow money payable
337487
1,2291,165
1,4541,786
2,1752,617
3,107Accrued expenses, accounts payable and other liabilities
3,1994,240
6,85512,940
17,54028,331
35,68444,249
54,36866,029
79,118Merchant deposits
1,1621,134
1,1901,527
1,6042,053
2,3762,748
3,1703,652
4,203Deferred revenue and customer advances
1,2771,597
2,1873,555
4,5896,765
8,44110,369
12,62315,190
18,037Total current liabilities
6,4008,071
13,62321,651
30,94444,584
53,22768,504
80,12594,134
113,089Deferred revenue
7265
93158
219314
392482
586706
838Deferred tax liabilities
7251,004
1,4753,079
3,3554,648
5,8007,125
8,67310,437
12,393Long-term debt
8,1638,292
11,16319,055
16,66413,318
11,6936,823
4,4874,404
3,573Other liabilities
347335
188327
9224,393
5,7116,282
6,9107,601
8,361Total liabilities
$15,707$17,767
$26,542$44,270
$52,104$67,257
$76,822$89,214
$100,781$117,281
$138,253Commitments and contingencies
Mezzanine equity
$106$54
$434$478
$1,016$1,033
$1,033$1,033
$1,033$1,033
$1,033Shareholders' equity:
Additional paid-in capital less Treasury Shares18,897
20,50423,501
29,41934,537
$33,633$32,599
$35,795$39,272
$43,843$48,716
Reserves252
365502
640740
748748
748748
748748
Subscription receivables(66)
(27)(9)
(26)(7)
--
--
--
Accumulated other comprehensive income (loss)372
597738
810(348)
--
--
--
Retained earnings4,007
12,21315,772
27,47738,426
51,67667,174
85,156105,856
129,305155,636
Total shareholders' equity$23,462
$33,652$40,504
$58,320$73,348
$86,056$100,521
$121,699$145,877
$173,897$205,100
Noncontrolling interests1,931
5,0486,150
11,25817,333
17,03317,033
17,03317,033
17,03317,033
Total equity25,393
38,70046,654
69,57890,681
103,089117,554
138,732162,910
190,930222,133
Total liabilities, mezzanine equity and equity$41,206
$56,521$73,630
$114,326$143,801
$171,379$195,409
$228,979$264,723
$309,244$361,419
17
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JonathanEbberhartJonathanEbberhartispursuingadegreeinFinance,concentratinginAssetManagement,accompaniedbyminorsinbothPoliticalScienceandEconomics.Hegrewupplayingfootballandappliedthecharacteristicsthatunderpinnedathleticsuccesstohisacademicpursuits.PriortojoiningtheAppliedSecuritiesAnalysisprogram,JonathanspentasummerasanOperationsAssociateInternwithAnchorWealthManagementandthislastsummerasaWealthManagementSummerAnalystwiththeJ.P.MorganprivateBank.Heseeshimselfenjoyingasuccessfulcareerincorporatefinancebeforestartinghisownprivateequityfirm.Jonathanispassionateaboutspreadingfinancialliteracytoridcommunitiesofcyclicalpoverty.AfterhisgraduationinMay2020,heplanstopursuehisCFAdesignation.
CristianoFernandesFilhoCristianoFernandesFilhoisafinancemajorwithaneconomicsminorcurrentlypursuinghisCFAdesignation.OriginallyfromSãoPaulo,Brazil,FernandesisthepresidentoftheBrazilianStudentAssociationatUSFandafirst-generationcollegestudentwhoholdsaUSFGPAof3.97.Hepreviouslyservedasafinanceandeconomicstutor,helpingstudentstosucceedinfivedifferentcoursesofferedatUSF.AfterspendingasummerinaFinancialPlanning&AnalysisinternshipwithCiti,hejoinedtheAppliedSecuritiesAnalysisprogramtogainexperiencewithEquities.Aftercollege,CristianoplanstopursueacareerinInvestmentBanking.
TimothyDavisTimothyDavisisafirst-generationAmericanbornandraisedinTampaBay.Exposedatayoungagetomarketmovementsthroughhisfather’srealestateinvestingafterthe2008recession,hehasdevelopedapassionforstudyingfinancialmarketsandinvestmentsandisanavidspeculator.Timothyispursuingafinancemajorandhasabackgroundinappliedstatistics,upper-levelmathematics,andinformationtechnology.HecurrentlyworksatMorganStanleyasaWealthManagementInternanalyzingclientportfolios,performingmarketresearch,andassistinginthedevelopmentofportfoliomanagementmodels.InjoiningtheAppliedSecuritiesAnalysisProgram,heplanstofurtherchallengeanddevelophisresearchandfundamentalanalyticalskills.TimothyaspirestoenterthefieldofprivateequityandiscurrentlypursuinghisCFAdesignation.
AnalystTeam