Alibaba

[CY09]

I think they want to kill each other to become the monopoly in SEA, subsequently then raise fees to be profitable.

However, both conglomerate have deep pockets so who wins is a question mark.

[specuvestor]

Just highlighting 2 things in another thread that is relevant to this discussion. I'm pretty sure this time is not going to be different. Even Softbank can run out of money:

"And just a side note on Amazon, which is not a development stage company anymore, it's interesting that till now few people realise their strategy is simply to have zero profit and cashflow positive, not aiming for negative profit or cash burn like many startups. You can have zero profit for extended period of time; but you cannot have negative profit for extended period of time. So the business model actually already shows that profit is not a good way to understand the company"
https://www.valuebuddies.com/thread-1041...#pid162281

"Amazon is an outstanding survival of dotcom but in my memory 9 out of 10 dotcom flopped. Out of the FAANG stocks Microsoft was not even considered dot com while FaceBook, Netflix and Google was not even listed while Apple was then struggling. Like Buffett's presentation during AGM last month on the automobile boom, in 20 years it's quite a story to tell, just as now 20 years after dotcom. In my view 10 years from now will be sufficient to see who has been swimming naked."
https://www.valuebuddies.com/thread-1041...#pid162285

[Choon]

Notwithstanding the regulatory environment in China & the hype about tech stocks, does Ali still deserve a punch in the "punch card investing" approach ? What could be the catalysts that can drive Ali's share price significantly upwards - earnings' growth or higher valuation or ???

Wildreamz has replied. I would try too and my points may be a repetition but perhaps a different complexion. I am vested, so would welcome contrary views, so as to improve my understanding and knowledge. 

1) I believe that the current share price has largely incorporated the bright prospects of the Cloud business. Because Cloud revenue is clearly disclosed and one can easily do a back-of-envelope profit projection based on 15-30% yoy revenue growth and apply a 25% operating profit margin (25% referenced from AWS). 

2) So what could cause Ali's share price in 5 years time to be higher than now would be better than market-expected performance in (a) consumer goods (Taobao & Tmall) and (b) consumer services (Ele, Fliggy, Amap).

3) For consumer goods (Taobao & Tmall), I hope that once Ali brings the fight to the likes of PDD, by competing on prices and subsidies, which Ali started to do in the recent quarter, over time, competitors (already currently loss-making) would be forced to retreat into smaller niches. Because does Ali not have an edge (scale, ecosystem, logistics) over these smaller competitors?

4) For consumer goods (Taobao & Tmall), I hope China's middle-class population can still expand, which would provide a gentle tail-wind to GMV.

5) For consumer services (Ele, Fliggy, Amap), this has been a motley crew of loss-making businesses and so Ali's share price would not have assumed bright prospects for this group. Ali recently reorganised this group; I guess chiefly to better compete with Meituan. In my imagination, if Ali successfully wins mind share, the majority of Chinese would order takeaway, groceries and flowers through Ele, book hotels, train and flight tickets through Fliggy. If Ali does well in consumer services, perhaps this business could become as big as consumer goods (Taobao & Tmall), also considering that profit margins of consumer services should be better than consumer goods since there's no logistics involved.

6) I remember not too long ago, Apple was trading around 10-12X PE for quite a period. And that's because market sentiment was just bearish on Apple - that Samsung phones pose strong competition, how much more can Apple raise the price of iphone, has Apple lost its innovation edge. And so I also feel that the market may be likewise overly bearish on Ali now because of the recent attacks on all fronts by many competitors. But bigness has a strength and Ali may be able to out-compete competition.

[Bibi]

This an old article Apr this year. Charlie Munger's Daily Journal co invested in Ali.

https://www.fool.com/investing/2021/04/0...should-yo/

[Wildreamz]

..

Even Softbank can run out of money:

Not sure how this is relevant, Alibaba doesn't rely on Softbank to finance it's businesses. Alibaba as a whole is hugely profitable. If this comes down to purely a battle of attrition, of course Alibaba will win. Alibaba has much deeper pockets than SEA.

Also, as mentioned; this is not purely a battle of attrition, the end-game (for both Lazada and Sea) is to build adjacent businesses on top of the e-commerce business + streamline supply chain efficiency, and thus achieve overall profitability. 

Hence, the metric to look at (for both Alibaba and Sea) is actually things like gross margin, net margin, operating cash flow etc. Whether they are trending in the right direction. For the case of Sea Ltd. (I don't think Alibaba breaks out Lazada's numbers) clearly they are:


Sources:
https://hypercharts.co/se
https://www.macrotrends.net/stocks/chart...ent?freq=Q

Last point, in just a few years, from a gaming company, Sea not only created an ecommerce powerhouse with global presence, they are now also a FinTech mobile payments play with SeaMoney (AirPay, ShopeePay, ShopeePayLater etc.), that may soon rival some of the biggest mobile wallet players in the world:


Sea's FinTech business I suspect, has much better unit economics than their ecommerce business (for now). While Alibaba has much deeper pockets right now; Sea Ltd is also not to be underestimated. Gun to my head, over the long run, both will likely thrive in South East Asia; there will not be 1 monopoly; even Amazon isn't a true monopoly in America's retail space, even though they tried to be one.

Peace.

[specuvestor]

I'm just saying even Softbank could run out of money if you keep burning cash, which was very close when Uber and WeWork stumbled, and financing run out. in such cash negative price war something got to go eventually, just as 20 years ago dot com or automobile boom or Milken 80s M&A.

[Wildreamz]

Agree that perpetually cash burning business is unsustainable.

But the jury is still out regarding Lazada/Shopee.

And Alibaba as a whole certainly isn't cash burning.

[CY09]

Thats the fun part Alibaba as a conglomerate can support Lazada's battle with shopee. And in alibaba's public financial statements, we cant see the effects of fighting Sea Group clearly

On the contrary, Sea Group with shopee being its main cash burner, the effects on cashflow/P&L is evident. Sea Group has been raising cash in a few rounds of convertible bonds and public offerings.

I am quite interested to see how the battle in the e commerce space will last with Sea Group having a war chest of US$6 billion cash with no debts except a US$1.8billion convertible note (convertible to shares at price of US$136, current share price $302). Sufficient cash to tide through 6 more years of war in order to claim top spot in a region of 650 mil population (albeit many are low income earners)

[Wildreamz]

If Lazada/Alibaba wants to win quickly by burning cash, you know they could; their cash on hand is what, $70+ billion? And they earns ~$5bil+ operating cash flow every quarter.

They are taking things in stride. They are probably figuring how to best integrate their international business with their mainland business in the most efficient and profitable way possible; while also figuring out localization (e.g. they also own 86.5% of Trendyol, the ecommerce platform in Turkey).

It's more intriguing to look at how Sea Ltd. manage their limited resources while fending off their more well-capitalized competitors; while also simultaneously launching new businesses and products, AND producing increasingly higher positive operating cash flow. Their ShopeePay, though launched around the same time as Razer Pay (now discontinued) and GrabPay; completely destroyed them at least in terms of global Google Search Interest.

I have gained a lot of respect of Forrest Li in the past few years.

[Elty]

Search intent of users for Shopee has certainly surpassed Lazada in recent times based on Google Trends.