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17-03-2023, 07:12 PM
Alibaba's December quarter 2022 result is out, lets revisit the sum of parts again:
Alibaba's market cap as of today is US$230.29 billion
Net cash: 55.007 billion
To be even more conservative this time I use their cash + short term investments minus all their borrowings. Excluding escrow receivables + restricted cash
Share investment equity value: 64.387 billion
"Equity securities and other investments" + "Investment in equity method investees" to be more conservative this time, I include their 33% Ant Group stake in it. This means I value Ant as it is in the balance sheet without any IPO prospects.
Cainiao(63% stake): 22.982 billion
Latest cash injection valuation done by Alibaba and size it to 63% stake, article here. That was in 2020, it should be worth more now due to its growing topline and shrinking ebita losses. If we use the same multiple as their 2020 cash injection valuation of 3.8x topline. Base on the 2.4bil usd topline for this quarter, the valuation is around 22.982 billion for Alibaba's 63% stake. This is despite the fact that Cainiao is growing their topline at 27% year on year.
Alicloud + Dingtalk: 58bil usd
Annualized its revenue this quarter and give it a conservative 5x multiple. 1/3 of what Liliani's article is valuing it at. Almost half of Goldman Sachs' valuation in 2020(article here).
Alicloud is ebita profitable, close to being operationally profitable. The 5x multiple I feel is warranted because its 9 months topline can still grow at 5% yoy, despite the draconian restrictions on the Chinese economy in 2022 under the zero covid policy, compared to Tencent which is currently trading more than 5x topline with almost no revenue growth yoy.
Alicloud has the largest market share in China at 36% and ranked third in the world. Cloud works on scale, so the larger market share you have, the higher gradual margin increment you will inherit.
Do note that in terms of Iaas global market share, Alicloud is bigger than Google Cloud and Google Cloud is estimated to be conservatively valued at 200bil usd. I feel 58bil usd for Alicloud is reasonable.
International Commerce(Lazada, Aliexpress, Trendyol): 22.576 usd
From the latest financing round in 2021, during the peak of covid, Trendyol is already valued at 16.5bil usd, article here. Annualize this segment's revenue for this quarter and give it a conservative 2x multiple.
Reason I give a 2x multiple is because Alibaba already has the experience paving a path to profitability for their domestic ecommerce. So despite the competition and difficulty in adapting to different cultures and languages, the potential to profitability is still there.
I feel that 22.576 billion is conservative because Trendyol latest cash raise valued it at 16.5bil already and I don't think Aliexpress and especially Lazada are only worth 6billion usd.
Ele.me, Amap, Fliggy, Digital media, Innovation: 12.513 bil usd
These businesses have unsubstantial revenue and unlikely to turn profitable anytime soon. I group their revenues together(Local consumer service + Innovation + Digital entertainment) for this quarter, annualize it and give it a 1x multiple.
Total sum of parts ex China core commerce: US$235.465 billion
This means Alibaba's most profitable segment, its China core commerce which helped the company churn out close to 12bil usd of fcf for this quarter alone is not only free, but valued at negative 5 billion usd in terms of its total sum of parts.
Even though I try to be conservative as much as I can, there might still be errors due to over valuation from previous cash raise or unknown headwinds for their businesses going forward. But assuming their 12bil free cash flow per quarter continues every quarter at a realistic range, I feel their net cash will keep increasing and hence the potential error will be corrected over time.
Alibaba repurchased 45.4 million ADSs for approximately US$3.3 billion under their share repurchase program. This amount is close to doubled from last quarter.
From mid 2021 onwards, Baba's total issued shares have been decreasing every quarter even after share based compensation. This gives me an impression that the management knows the company is cheap and hence wants to actively close the gap through share buy back.
To give you a gist of how low Chinese tech companies are valued now. Nvidia churns out 4-5bil usd of fcf in a year, Alibaba churns out 12bil usd fcf in a quarter(3 months) yet Nvidia's market cap is 2.5x that of Alibaba. The reason is likely due to geo politics, domestic governance risk and macro outlook, hence it depends on you whether you want to consider these factors into your investing strategy. Own view.
Alibaba's market cap as of today is US$230.29 billion
Net cash: 55.007 billion
To be even more conservative this time I use their cash + short term investments minus all their borrowings. Excluding escrow receivables + restricted cash
Share investment equity value: 64.387 billion
"Equity securities and other investments" + "Investment in equity method investees" to be more conservative this time, I include their 33% Ant Group stake in it. This means I value Ant as it is in the balance sheet without any IPO prospects.
Cainiao(63% stake): 22.982 billion
Latest cash injection valuation done by Alibaba and size it to 63% stake, article here. That was in 2020, it should be worth more now due to its growing topline and shrinking ebita losses. If we use the same multiple as their 2020 cash injection valuation of 3.8x topline. Base on the 2.4bil usd topline for this quarter, the valuation is around 22.982 billion for Alibaba's 63% stake. This is despite the fact that Cainiao is growing their topline at 27% year on year.
Alicloud + Dingtalk: 58bil usd
Annualized its revenue this quarter and give it a conservative 5x multiple. 1/3 of what Liliani's article is valuing it at. Almost half of Goldman Sachs' valuation in 2020(article here).
Alicloud is ebita profitable, close to being operationally profitable. The 5x multiple I feel is warranted because its 9 months topline can still grow at 5% yoy, despite the draconian restrictions on the Chinese economy in 2022 under the zero covid policy, compared to Tencent which is currently trading more than 5x topline with almost no revenue growth yoy.
Alicloud has the largest market share in China at 36% and ranked third in the world. Cloud works on scale, so the larger market share you have, the higher gradual margin increment you will inherit.
Do note that in terms of Iaas global market share, Alicloud is bigger than Google Cloud and Google Cloud is estimated to be conservatively valued at 200bil usd. I feel 58bil usd for Alicloud is reasonable.
International Commerce(Lazada, Aliexpress, Trendyol): 22.576 usd
From the latest financing round in 2021, during the peak of covid, Trendyol is already valued at 16.5bil usd, article here. Annualize this segment's revenue for this quarter and give it a conservative 2x multiple.
Reason I give a 2x multiple is because Alibaba already has the experience paving a path to profitability for their domestic ecommerce. So despite the competition and difficulty in adapting to different cultures and languages, the potential to profitability is still there.
I feel that 22.576 billion is conservative because Trendyol latest cash raise valued it at 16.5bil already and I don't think Aliexpress and especially Lazada are only worth 6billion usd.
Ele.me, Amap, Fliggy, Digital media, Innovation: 12.513 bil usd
These businesses have unsubstantial revenue and unlikely to turn profitable anytime soon. I group their revenues together(Local consumer service + Innovation + Digital entertainment) for this quarter, annualize it and give it a 1x multiple.
Total sum of parts ex China core commerce: US$235.465 billion
This means Alibaba's most profitable segment, its China core commerce which helped the company churn out close to 12bil usd of fcf for this quarter alone is not only free, but valued at negative 5 billion usd in terms of its total sum of parts.
Even though I try to be conservative as much as I can, there might still be errors due to over valuation from previous cash raise or unknown headwinds for their businesses going forward. But assuming their 12bil free cash flow per quarter continues every quarter at a realistic range, I feel their net cash will keep increasing and hence the potential error will be corrected over time.
Alibaba repurchased 45.4 million ADSs for approximately US$3.3 billion under their share repurchase program. This amount is close to doubled from last quarter.
From mid 2021 onwards, Baba's total issued shares have been decreasing every quarter even after share based compensation. This gives me an impression that the management knows the company is cheap and hence wants to actively close the gap through share buy back.
To give you a gist of how low Chinese tech companies are valued now. Nvidia churns out 4-5bil usd of fcf in a year, Alibaba churns out 12bil usd fcf in a quarter(3 months) yet Nvidia's market cap is 2.5x that of Alibaba. The reason is likely due to geo politics, domestic governance risk and macro outlook, hence it depends on you whether you want to consider these factors into your investing strategy. Own view.
