Alibaba

Actually is Alibaba cheap even at current price of hkd 180? If I strip its net profit away from its investment income, its pe shld be +/- 34 range. Its growth rate about 30 to 35 over past few years. Not really cheap to me. But compared to USA tech shares its cheap.

Do note the Chinese government has now ordered food delivery companies to pay a minimum wage to its delivery riders. This will affect the P&L of companies such as Meituan and Alibaba as they are in the food delivery business.

It seems like the CCP government focus is now on levelling the social inequality and are targeting such things. It is also linked to Wildreamz's article where it is mentioned they are not in favour of companies who burn cash in order to be a monopoly and subsequently find ways such as increasing platform fees or cutting their drivers/riders commission in order to be profitable.

The latest measures is akin to a hypothetical scenario of Singapore government telling Grab, it cannot raise platform fees and puts a floor on how much they pay their riders/drivers. Something that will kill Grab

(27-07-2021, 05:10 PM)CY09 Wrote: Do note the Chinese government has now ordered food delivery companies to pay a minimum wage to its delivery riders. This will affect the P&L of companies such as Meituan and Alibaba as they are in the food delivery business.

It seems like the CCP government focus is now on levelling the social inequality and are targeting such things. It is also linked to Wilddream's article where it is mentioned they are not in favour of companies who burn cash in order to be a monopoly and subsequently find ways such as increasing platform fees or cutting their drivers/riders commission in order to be profitable.

Yes. But Ele.me is not material to Alibaba's profitability. What's important for Alibaba, IMO, was to curb the rising importance of Meituan among Chinese, and secure data-flows.

In fact, I think this regulation is net positive for Alibaba, as it cripples Meituan more than Alibaba.

(CNBC) Chinese state media issues "investment tips".

(27-07-2021, 10:48 AM)Wildreamz Wrote:

(27-07-2021, 10:28 AM)Choon Wrote: ..

What could cause you to expand your small exposure in Ali to a large one? If you do not mind sharing.

Most of my position has been built up a couple years ago when Xi still seem like the benevolent authoritarian figure.

My opinions evolved overtime, and am increasingly negative on the government's general hardhanded tactics and strategies both domestically and overseas.

Personally would like to see a few more earning quarters, and see how situation develop, before adding more risk exposure to China.

Also, as mentioned, the greatest strengths of Alibaba as an investment is not the potential reward; as it is already a very big company. It's mainly the predictability of it's business trajectory (pseudo-monopoly), inherent profitability (https://ycharts.com/companies/BABA/free_cash_flow_ttm), tech and strategic vision (https://www.reuters.com/article/us-aliba...SKBN1WA09R).

But when government's unpredictability overshadows Alibaba's predictability, then the thesis falls apart. And the investment will be more trouble than it's worth.

Peace.

PS: In general, I think the regulatory pressure to this point, though hard-handed, still falls under "good-faith", to me. But for them to be willing to decimate the entire Chinese EduTech industry overnight, the government is also signaling that they absolutely do not care about your capitalist profits, and will do whatever they deem necessary, with no recourse to the losses of foreign investors.

Thanks much for sharing. I hold a different view. But I think that it is good to share and hear all our different views.

Amidst all these new regulatory risks and share price declines, my key thought is that finally, Ali's share price is at a range where valuation makes sense (not saying that it is cheap, but finally where valuation principles make some sense) - imo.

The struggle now becomes: should one buy a great company at fair price or wait a while more since selling pressure is strong (but potentially missing out if there is a rebound).

(27-07-2021, 04:18 PM)Bibi Wrote: Actually is Alibaba cheap even at current price of hkd 180? If I strip its net profit away from its investment income, its pe shld be +/- 34 range. Its growth rate about 30 to 35 over past few years. Not really cheap to me. But compared to USA tech shares its cheap.

Based on my own interpretation of core earnings, I got 37X based on FY2021 numbers.

My interpretation of core earnings ([attachment=1801]) is based largely on: 
- Ali's definition of Adjusted EBITA;
- Amortisation;
- Share-based compensation;
- Tax (assuming 20%).

My interpretation of its core earnings growth in past three years is ~20%, based largely on Ali's definition of "Marketplace Core Commerce Adjusted EBITA". I.e. the earnings growth of Taobao and Tmall; excluding the less mature / in gestation / loss-making businesses of New Retail, Consumer Services, Lazada, Cainiao, Cloud. ([attachment=1802])

I thought at ~HKD/USD 180, its not cheap, but finally valuation principles make some sense, because if one is willing to wait and gamble for 2 years, by FY2023, PE would become 26X (based on my own projections). And 26X (being less than 30X) doesn't sound expensive for a technology or a strong franchise company.

PE is a pricing metric. 40x PE can be undervalued and 10x PE can be overvalued (depending on future cash flow and profitability).

I purchased it when it is 40x PE, and I'm still in the money (CAGR >15%) based on today's price.

To each his own

(28-07-2021, 01:22 AM)Choon Wrote: Based on my own interpretation of core earnings, I got 37X based on FY2021 numbers.

My interpretation of core earnings () is based largely on: 
- Ali's definition of Adjusted EBITA;
- Amortisation;
- Share-based compensation;
- Tax (assuming 20%).

My interpretation of its core earnings growth in past three years is ~20%, based largely on Ali's definition of "Marketplace Core Commerce Adjusted EBITA". I.e. the earnings growth of Taobao and Tmall; excluding the less mature / in gestation / loss-making businesses of New Retail, Consumer Services, Lazada, Cainiao, Cloud. ()

I thought at ~HKD/USD 180, its not cheap, but finally valuation principles make some sense, because if one is willing to wait and gamble for 2 years, by FY2023, PE would become 26X (based on my own projections). And 26X (being less than 30X) doesn't sound expensive for a technology or a strong franchise company.

Yes u r right. At this pt in time and assuming it stopped growing, its expensive. But if it can continues to grow at 20%, ultimately, valuation will make sense and its current high pe will become cheap in years to come. I hardly use this type to valuate companies in spore as i find not many here can continue growing for 10 yrs. Looks like I hv to change my thinking when looking at overseas companies which usually r able to keep growing for many yrs. Thank you!

Actually if look at revenue growth is closer to 35% the past few years, assuming some of the profit they could have made is invested back into the business for growth, Alibaba looks even more undervalued.

Interesting developments.

Between Alibaba and Tencent, I am of the opinion that the former may survive better than the latter if it is true that 'exploitative' companies are less favoured by the government. There is less impact/consequence to the economy if certain popular mobile games are shut down, compared to shutting down the internet infrastruce of China's e-commerce. If I were a betting man I will put my money on the former.

Yet, even as the recently lower price of Alibaba is tempting, I must also admit that assessing Alibaba's future value is outside of my circle of competence. From my simple thinking, I can assume GMV will continue to rise in the future, as both unit and price of sales increases from economic growth. But will it still be able to cross-sell as well, or dominate the market as much, in the future?

In any case, the going had been good for the early owners of these tech stocks. Only the late comers suffered.