Alibaba

(30-08-2021, 08:17 AM)Choon Wrote: I think Ali had also helped greatly to enhance the coverage and service level of China's logistics/courier industry. And spearheaded the jump into a cashless society making commerce and lives so much easier.

If you could share - how do you value Ali - that it looks like a good opportunity? 

In attached picture, I am valuing Ali at ~30X historical PE and ~20+ forward PE (assuming double-digit profit growth). Being more used to traditional-stocks, I hesitant/struggle to think this is CHEAP. Yet ~20+ forward PE within a few years sound reasonably fair to me (for reasons I cannot fully understand and explain).

As you have already noted, alibaba is the toll booth which consumers and merchants have to pay if they access to China's e-commerce market. And China's e-commerce market does not seem like it will stop growing in the next decade, as increasing incomes will mean higher GMV.

Outside of China, South East Asia and Russia are the other large markets where alibaba is trying to construct the same toll booth it has in China. So these developing economies will also be experiencing income growth (although not as fast as China) and hence a larger e-commerce market.

How much will the growth of the Asian e-commerce markets add to alibaba's top and bottom line in the next 5 or 10 years? I don't know. But if they are able to maintain their market position (against PDD, JD, SEA, Tencent, etc) then it should be positive. This is a big assumption (and I think investors should be more worried about competition than regulation), and it should be remembered that the leader can very quickly become the lagger in tech.

Even after the almost 50% correction from 52w high, its current 20ish p/e still cannot be considered cheap if you are a strictly Graham style investor looking to buy stuff at p/e of 5 or p/b of 0.3. But if earnings double or quadruple in the next 5-10 years, alibaba's market value will probably grow by that much as well.

Of course, if you find another stock selling at p/e of 5 that doubles or quadruples its earnings, and with strong visibility to convince investors that its valuation multiple should be higher, then that will be an even bigger winner. But there's a lot of challenge in picking these stocks as well.

My view is the biggest unknown is simply regulation, period.

Alibaba has been executing extremely consistently over the last few years (again, look at MAU, growth rate of R&D spend, topline, gross earnings, margin of individual business segments, FCF etc.; looking at GAAP net income alone is the wrong metric here).

The main issue is regulation. With CCP's renewed focus at "common prosperity", and strengthening oversight (ie control); would a figurative/literal high-margin "toll booth" at China's most important sectors (e-commerce, fintech etc.) serves CCP's best interest?

Personally do not think Alibaba is just a simple "toll booth". "Toll booth" has implications that it simply extracts value, and does not contribute; personally I think it provides more value than it extracts. Alibaba took risks, put in the work (R&D, capex etc.), and build out the most critical infrastructures (digital, financial, logistics etc.) of modern Chinese economy; but I'm not sure what the CCP thinks.

(01-09-2021, 07:22 PM)karlmarx Wrote:

(30-08-2021, 08:17 AM)Choon Wrote: I think Ali had also helped greatly to enhance the coverage and service level of China's logistics/courier industry. And spearheaded the jump into a cashless society making commerce and lives so much easier.

If you could share - how do you value Ali - that it looks like a good opportunity? 

In attached picture, I am valuing Ali at ~30X historical PE and ~20+ forward PE (assuming double-digit profit growth). Being more used to traditional-stocks, I hesitant/struggle to think this is CHEAP. Yet ~20+ forward PE within a few years sound reasonably fair to me (for reasons I cannot fully understand and explain).

As you have already noted, alibaba is the toll booth which consumers and merchants have to pay if they access to China's e-commerce market. And China's e-commerce market does not seem like it will stop growing in the next decade, as increasing incomes will mean higher GMV.

Outside of China, South East Asia and Russia are the other large markets where alibaba is trying to construct the same toll booth it has in China. So these developing economies will also be experiencing income growth (although not as fast as China) and hence a larger e-commerce market.

How much will the growth of the Asian e-commerce markets add to alibaba's top and bottom line in the next 5 or 10 years? I don't know. But if they are able to maintain their market position (against PDD, JD, SEA, Tencent, etc) then it should be positive. This is a big assumption (and I think investors should be more worried about competition than regulation), and it should be remembered that the leader can very quickly become the lagger in tech.

Even after the almost 50% correction from 52w high, its current 20ish p/e still cannot be considered cheap if you are a strictly Graham style investor looking to buy stuff at p/e of 5 or p/b of 0.3. But if earnings double or quadruple in the next 5-10 years, alibaba's market value will probably grow by that much as well.

Of course, if you find another stock selling at p/e of 5 that doubles or quadruples its earnings, and with strong visibility to convince investors that its valuation multiple should be higher, then that will be an even bigger winner. But there's a lot of challenge in picking these stocks as well.

Thanks.

"This is a big assumption (and I think investors should be more worried about competition than regulation)..."

---> I share the same view. 


"Even after the almost 50% correction from 52w high, its current 20ish p/e still cannot be considered cheap if you are a strictly Graham style investor looking to buy stuff at p/e of 5 or p/b of 0.3. But if earnings double or quadruple in the next 5-10 years, alibaba's market value will probably grow by that much as well."

---> My own definition of cheap is the sum of next 10-years PATMI being equal to today's mkt cap. This is easy for say THG / HKL - even if one assumes earnings will be flat (0% growth) for next 10 years, one can still recover current mkt cap in 10 years time.

---> For Ali, even after assuming 10-20% PATMI growth over 10 years (to take into account its quality, positioning and growth prospects), I find it hard to recover its current mkt cap within 10-years.

Thus asked CY09 for his 'cheap' metric.  

If a company's current P/E is 25 and profits grow 10% annually for 10 years, it will have a P/E of 10x in 10 years. That itself is very commendable.

For me I am basing on a forward P/E of 20 x in 3 years time, if we present value to current time that means current P/E must be 25 or below; right now to me, baba is cheap (P/E 21x). My target price is about $207.

However the market can be exuberant and price that Alibaba will grow profits faster. The magic number to adjust target price is assuming (i) Future P/E you want it to be or (ii) projected annualized profit growth

<vested>

https://www.channelnewsasia.com/business...ne-2151431

To show the extent of cloud computing segment in the world, it can be seen that AWS business has expanded into nearly every aspect of life (due to product offerings such as APIs). If Alibaba and Tencent (to a smaller extent) can compete with Amazon, it will be quite a feat and the prospects of profit growth is tremendous. Amazon main profit contributor is now its cloud computing segment.

If alibaba can do the same, there is room for profits to double over a span of 5-10 years like Amazon

https://www.reuters.com/world/china/chin...021-09-02/

Quote:China's Alibaba to invest $15.5 bln towards "common prosperity"

Edit: More details: https://zj.zjol.com.cn/news.html?id=1722...id=1722096

https://aswathdamodaran.blogspot.com/202...tment.html

China's Tech Crackdown: Its about Control, not Consumers or Competition! - Aswath Damodaran

Quote:Moving to Alibaba, the second largest Chinese tech company in 2020, I drew on a blog post that I wrote ahead of its IPO in 2014, where I described it as “the Real China Story”, because so much of Chinese retail traffic travels through its platforms (Taobao and TMall), with the company collecting a slice of the transaction revenues, in return for its intermediation services.

Quote:While Alibaba is sometimes characterized as China's Amazon, it is closer to Google in its business model, collecting most of its revenues from customers using its platforms to buy goods and services.

Prof Damodaran's view on Alibaba is similar to mine. An interesting analysis of Alibaba, Tencent, JD and Didi.

Note: He is by no means a "China expert" and one should not seek to find accurate predictions of CCP's future move from his blog post.

Not sure if directly related to Alibaba:
https://www.bloomberg.com/news/articles/...-crackdown

Quote:China Bans Effeminate 'Sissy Men' From Television
Beijing (AP) -- China’s government banned effeminate men on TV and told broadcasters Thursday to promote “revolutionary culture,” broadening a campaign to tighten control over business and society and enforce official morality.

President Xi Jinping has called for a “national rejuvenation,” with tighter Communist Party control of business, education, culture and religion. Companies and the public are under increasing pressure to align with its vision for a more powerful China and healthier society.

https://www.8days.sg/entertainment/asian...5qbtBh2qKQ

I think this would be more relevant

The latest target of China’s tech regulation blitz: algorithms
https://www.cnbc.com/2021/09/03/chinas-t...ithms.html

Quote:What the draft says
Here are some of the key points in the draft rules:

*Companies must not set up algorithms that push users to become addicted or spend large amounts of money.
*Service providers need to notify users in a clear way about the algorithmic recommendation services they provide.
*Users need to have a way to switch off algorithmic recommendation services. Users should also have a way to choose, revise, or delete user tags used for the recommendation algorithm.
*When algorithms are used to market goods or provide services to consumers, the company behind it must not use the algorithm to carry out “unreasonable” differentiation in terms of prices or trading conditions.
*Any violations of the rules could land companies with fines between 5,000 yuan and 30,000 yuan ($773 and $4,637).