Alibaba

[Wildreamz]

Imagine if >50% of Chinese hotel bookings, flight bookings are booked through Ali. 

Actually, that may not be a good thing. That is sure to get clamped down by the Chinese government. The trick is be indispensable, profitable, yet not too big (ala Apple) so as not to be regulated like a monopoly/utility.

Ultimately, Alibaba's management is not dumb, and is carefully calibrating and carving out their own profitable niche. As Jack Ma said time and again, Alibaba is not striving to be a retail company, but a "Data company" (much like Google): https://medium.com/@TMTPOST/jack-ma-alib...45abdf6d9a

2c.

(vested, small)

[Choon]

Imagine if >50% of Chinese hotel bookings, flight bookings are booked through Ali. 

Actually, that may not be a good thing. That is sure to get clamped down by the Chinese government. The trick is be indispensable, profitable, yet not too big (ala Apple) so as not to be regulated like a monopoly/utility.

Ultimately, Alibaba's management is not dumb, and is carefully calibrating and carving out their own profitable niche. As Jack Ma said time and again, Alibaba is not striving to be a retail company, but a "Data company" (much like Google): https://medium.com/@TMTPOST/jack-ma-alib...45abdf6d9a

2c.

(vested, small)

"Actually, that may not be a good thing. That is sure to get clamped down by the Chinese government. The trick is be indispensable, profitable, yet not too big (ala Apple) so as not to be regulated like a monopoly/utility."

You may have a point. But it does appear that for a platform business to be successful, to create the self-reinforcing virtuous cycle between Merchant and Consumer, the platform needs a majority market share.

Think PropertyGuru, Grab, ComfortDelgro (back in those days) in SG, Amazon in US, Didi, Meituan in China.

[Wildreamz]

You may have a point. But it does appear that for a platform business to be successful, to create the self-reinforcing virtuous cycle between Merchant and Consumer, the platform needs a majority market share.

Think PropertyGuru, Grab, ComfortDelgro (back in those days) in SG, Amazon in US, Didi, Meituan in China.

Although businesses generally benefit from scale (economies of scale), not all business require absolute majority market share to succeed (some exceptions, network effect companies such as social media, sharing economy business such as Airbnb; I'm not even sure if ride-sharing apps really has strong network effect).

Case in point, if either Meituan or Ele.me holds 90% market share, it will probably be regulated like a utility ("cost-of-service" regulations etc.). Neither wants that.

Personally think Alibaba is choosing it's battles (ie not prioritizing market share) and will likely continue to succeed long-term. 

Actually with the recent crack down of new Chinese listing overseas; paradoxically, I think it may even benefit larger, more established, profitable, Chinese companies like Alibaba, as it cuts off it's smaller competitors' access to new capital (can't IPO easily in the US, VCs can't "exit" easily); in fact, I think these startups would more likely be acquired by Alibaba/Tencent etc. at a discount now.

Peace.

[Wildreamz]

https://www.cnbc.com/2021/07/26/asia-mar...s-oil.html

Hong Kong’s Hang Seng index drops 3% as China tech and education shares plunge

A tumultuous time for Chinese investors, especially high growth tech sector.

Fortunately my exposure is limited to a small position in Alibaba.

This is starting to look more and more like a binary outcome that is 100% dependent on Xi (the silent and largest investment partner). Depending on your inclinations, this may be a feature or a bug.

Peace.

[Wildreamz]

This is a great opinion piece: https://insider.techbuzzchina.com/c/poli...6644c6f4dc

Huang Qifan is the former mayor of Chongqing who popped up on my radar as someone to follow last year during the Ant fiasco, because he was both the person to grant Ant the microlending licenses that would set off the entire industry (most of China Big Tech ended up getting licenses from Chongqing) and the person to publicly criticize Ant's irresponsible use of ABS, which he also had a hand in slowing.

..

Per Huang, there are 4 main problems right now that highlight problems with all of consumer internet:

Companies burning money in an effort to scale up and obtain a monopoly. This makes everything into a zero-sum game and destroys the economy's ability to allocate resources optimally.  [And specifically for ecommerce,] once there is a monopoly, the costs for merchants end up being even higher than selling in an offline supermarket.  This seems directly targeted at Alibaba ...

Using human weaknesses to design products and acquire traffic. This refers to Chinese apps using pornographic or otherwise crass / sensational and often misleading tactics to hook users. Basically, think of the worst kinds of clickbait.  Most of the content apps engage in this behavior, with Weibo consistently being one of the worst offenders.

Monopolistic online platforms taking asymmetric measures to collect information from users and infringing on their privacy. Oh boy, this is probably referring to everyone, but we already know that is coming.

Discriminatory pricing. In doing so, the platform has divided the user base into different classes, but this actually means that the consumer internet company has not yet found a profitable business model.  Unreasonable business models such as these are not viable.  This was one of the practices specifically highlighted in the antitrust regulations, and multiple companies are guilty of it, but Didi has been one of the more frequently cited ones as far as I can tell.

..

[Wildreamz]

https://www.wsj.com/articles/chinas-tech...1627304021

China’s Tech Regulator Orders Companies to Fix Anticompetitive, Security Issues

Country continues crackdown on large technology companies with new six-month rectification program

[Choon]

https://www.cnbc.com/2021/07/26/asia-mar...s-oil.html

Hong Kong’s Hang Seng index drops 3% as China tech and education shares plunge

A tumultuous time for Chinese investors, especially high growth tech sector.

Fortunately my exposure is limited to a small position in Alibaba.

This is starting to look more and more like a binary outcome that is 100% dependent on Xi (the silent and largest investment partner). Depending on your inclinations, this may be a feature or a bug.

Peace.

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

[Wildreamz]

..

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.

[Wildreamz]

I think moving forward (for now, situation can still change for better or worse), one really need to seriously re-think their investment thesis on Chinese companies.

Are their business model, fundamentally net value add to stakeholders? (shareholders, society, their customers, environment etc.)

If it is, then you should do fine. Example BYD (1211) though predominantly situated in China, is relatively unscathed so far in this debacle. As they mainly work in so-called "hard tech" and is adding value to the Chinese society by helping them be more competitive globally, and transitioning to more sustainable energy sources for transportation domestically. The value of their business to society is obvious, and is unlikely that the government is going to hamper it.

Whereas, say businesses like mobile gaming, where a lot of profit, comes from exploiting human psychology, to get them addicted and spend more and more money and time on frivolous things; or social media that makes people addicted with visual stimuli, and extract and monetize their personal private information; or food delivery businesses, that exploit it's employees to extract maximum value, or simply spamming cash to monopolize a sector, then value extract from customers by raising price; or EduTech businesses, that simply exploit Chinese parents' kiasu/FOMO mentality, with regards to spending on children's private education.

The above businesses, with little/no value-add, net negative value-add for stakeholders; their days are probably numbered, under the current administration.

[Wildreamz]

I think moving forward (for now, situation can still change for better or worse), one really need to seriously re-think their investment thesis on Chinese companies.

...

SMIC (0981) now up big post regulation. Like BYD (1211), their fundamental value-add to Chinese stakeholders is obvious.

Edit: SMIC moved apparently because of this news: https://finance.sina.com.cn/stock/gujiay...8230.shtml

Getting a little more bullish on Alibaba.