Transcript Document 185654

Alibaba Group Holding Ltd.
NYSE: BABA
Vivek Vinayak
Patrick Leake
Company History
1999: Alibaba is founded by 18 founders, including Jack Ma
2000: Raises US $25 MM from Softbank, GS, Fidelity, etc.
2002: Becomes profitable
2003: Taobao created C2C (eBay and Amazon)
2004: Alipay is launched – online payment system (PayPal)
2005: Yahoo invests $1 billion in cash for 40% stake in Alibaba
2009: Alibaba Cloud Computing is established
2010: Taobao Mall, or Tmall launches (Amazon).
2014: Alibaba IPO – largest global IPO
How big is Alibaba?
 “In 2013, two of Alibaba’s websites handled $240 billion in sales.” 2x
Amazon, 3x eBay
 Alibaba accounts for 60% of packages delivered in China
 80% of China’s e-commerce
 “Alibaba’s Taobao is one of the 20 most-visited websites globally.”
 Anticipated to handle $1 trillion a year in transactions in 2018
Revenue Sources
Marketing services to merchants on its marketplaces:
◦ Alibaba’s online platform bid for specific keywords, which upon being typed in a browser, display product
listings.
◦ Alibaba charges the sellers on a cost-per-click basis and offers this service on its own platform, as well as thirdparty affiliates.
◦ The company also charges sellers on a cost-per-thousand impressions basis in exchange for an attractive display
position on its platform (one of its marketplaces) or with third-party affiliates.
Transaction fees; primarily from Tmall and Juhuasuan
◦ Sellers pay a certain transaction fee to Alibaba for goods that are sold through Alibaba. This fee typically ranges
between 0.3% to 5% of gross merchandise volume.
Alibaba offers premium subscriptions and value-added services.
◦ Cloud services, Alipay, Subscription Video & Music, etc……
Business Segmentation
Segment
Descriptions
Revenue Sources
China e-commerce retail
78%
Taobao Marketplace
Largest C2C online and mobile shopping
marketplace in China. eBay and Amazon.
P4P or display marketing fees; subscriptions fees
for storefront software
Tmall
Largest B2C online and mobile platform for
brands and retailers in China. Amazon.
P4P or display marketing fee; commissions based
on percentage of MV; annual upfront services fees
Juhuasuan
Daily deal sites that leverages Taobao
Marketplace. Groupon.
Placement fees for promotional slots; commissions
based on percentage of GMV
China e-commerce wholesale
1688.com
5%
B2B, online wholesale marketplace in China.
Fees from memberships and value-added services;
P4P and keyword bidding marketing fees
Int’l e-commerce retail
Alibaba.com
Rev. Contr.
7%
Leading global wholesale platform focusing
on export trades between suppliers in China
and buyers globally
Fees from membership and value-added services;
P4P marketing fees
Investment Thesis
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Ridiculous Growth & aggressive management
Great fundamentals & balance sheet for high-growth company
China’s growing middle class in a growing economy
Recommendation
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Purchase shares before earnings report (1/29)
Hold period: 6 to 12 months
Exit: If it trades below IPO price ($92) – Political and interest rate risk
Sell: $120
Profit?
Price Chart
Jan 21. Closing Price: 103.29
52 week Range: 82.81 – 120.00
Competitor Comparison
BABA AMZN
BIDU
Market Cap 248.67B 134.01B 77.29B
Revenues
10.25B 85.25B
7.20B
Net Income 4.71B -215.00M 2.06B
P/E
50.2
N/A
37.55
Rev. Growth 54%
20%
52%
EBAY
66.69B
17.51B
-127.00M
N/A
12%
China Growth Potential
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Online Shipping RMB 128 Million (2008) to RMB 1.9 Trillion (2013) to RMB 5.6 Trillion (2017)
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Consumption is 36% of GDP (US is 67%)
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Growing mobile internet penetration, smartphone usae and tablets, and improving wireless
telecommunication infrastructure in China.
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Food and beverages, health goods, and medical services are under-penetrated in online
retailing.
Alibaba’s Chinese Dominance
China’s E-commerce Potential
China US
Consumption % of GDP
36%
67%
Internet Penetration
46%
82%
Online Shopper Penetration
49%
64%