Alibaba Group Holding Ltd is an online & mobile commerce company. The Company through its subsidiaries provides retail and wholesale marketplaces available through personal computer and mobile interfaces. Alibaba Group’s mission is to make it easy to do business anywhere. The company was founded in 1999 and is the largest online and mobile commerce company in the world in terms of gross merchandise volume. Alibaba Group’s major businesses include:
Taobao Marketplace (www.taobao.com), China’s largest online shopping destination
Tmall.com (www.tmall.com), China’s largest third-party platform for brands and retailers
Juhuasuan (www.juhuasuan.com), China’s most popular online group buying marketplace
Alitrip (www.alitrip.com), a leading online travel booking platform
AliExpress (www.aliexpress.com), a global online marketplace for consumers to buy directly from China
Alibaba.com (www.alibaba.com), China’s largest global online wholesale platform for small businesses
1688.com (www.1688.com), a leading online wholesale marketplace in China
Aliyun (www.aliyun.com), a provider of cloud computing services to businesses and entrepreneurs
The management team of Alibaba is highly competent, experienced and capable. The leadership comprises of Executive Chairman and founder: Jack Yun MA . He is the first mainland Chinese entrepreneur to appear on the cover of Forbes. As of November 2014, he is the richest man in China (HK not included) and 18th richest man in the world, with an estimated net worth of $29.7 billion according to Bloomberg Billionaires Index.
The Executive Vice Chairman is Joseph C. TSAI. Joe Tsai joined Alibaba in 1999 as a member of the Alibaba founding team and has served as executive vice chairman since May 2013. He previously served as the chief financial officer and member of board of directors of the company since formation. From 1995 to 1999, Joe worked in Hong Kong with Investor AB, the main investment vehicle of Sweden.
Daniel Zhang is the CEO of the company. He joined Alibaba Group in 2007 and was named chief executive officer in May 2015. He also serves on Alibaba Group’s board of directors and is a founding member of the Alibaba Partnership. Over the past eight years, Daniel has held top management positions across the organization. Under Daniel’s leadership, Taobao Mall rapidly became one of Alibaba Group’s most important businesses and was highly recognized by consumers and brands in China and around the world. Daniel also led Alibaba Group’s several strategic investments, including Alibaba Health, Haier, Intime Retail and Singapore Post.Daniel serves on the boards of several other public companies listed in both the U.S. and Hong Kong, including Alibaba Health, Haier, Intime Retail Group and Weibo.
Alibaba Group Holding has received a consensus recommendation of “Buy” from the forty-three brokerages that are presently covering the stock (Analyst Ratings Network.com reports) One research analyst has rated the stock with a sell rating, four have issued a hold rating, thirty-six have given a buy rating and one has issued a strong buy rating on the company. The average 1-year price target among brokers that have issued a report on the stock in the last year is $107.82.
Alibaba group IPO
Alibaba Group Holding Limited completed its initial public offering on September 18, 2014. At that time, 368.12 million shares were sold to the public at an average price of $68.00 per share. This is considered one of the biggest IPO in the history of NYSE so far. The underwriting syndicate included Credit Suisse, Citibank, Deutsche Bank, Goldman Sachs, JPMorgan Chase, and Morgan Stanley.
Alibaba Financial metrics
Source: Morning star
The stock has very promising financials. Alibaba 30 day average volume of 12.1 million.The stock has a 50-day moving average of $86.22 and a 200-day moving average of $88.42. The TTM sales revenue is $12.3 biilion. The company reported diluted EPS (TTM ) of $1.59 for the year ended in March 2015. The company’s quarterly revenue was up 44.83% on a year-over-year basis. The current PE ratio (TTM) is 52.903 and Price to sales ratio (TTM) is 16.76.The Capital structure as on 31st December’2014 constitutes both debt and equity. The total debt is $11157 million. The amount of debt payable in 5 Years $5000 million.The total number of shares outstanding is $2,588million. This shows company is a large cap stock. The company has a market capitalization of $223 billion. Long Term Debt of the company is $8073 million and total long term interest or fixed financial burden is $490 million. But the interest coverage ratio is approximately 13 times which implies adequate cushion for timely payment of interest. Current position as on 31st December 2014 highlights that the total current assets are $27431 million and current liabilities are $10170 million. The cash assets of the company are to the tune of $ 17253 million. This indicates that Alibaba is highly liquid in the short run. Analysis of various profitability and liquidity ratios of the company further reflect the strong fundamentals of Alibaba.The company has zero dividend payout ratio which indicates that company has no history of cash dividend payment. This is primarily due to the fact that company is in expansion mode so currently retaining profits for financing growth opportunities
Strategic Investments of Alibaba
A ) Investment in Mei.com: Alibaba Group Holding Limited has recently made a strategic investment in Mei.com, China’s leading flash sales platform for luxury and fashion products. This collaboration is expected to enhance Mei.com’s supply chain services of the sales of limited time discounted quality products from well-known international luxury and fashion brands to consumers in China. The investment will enable Alibaba Group to integrate resources from its B2C platform. Alibaba Group’s ecosystem and its multi-level cross-platform retail services will be further enhanced with investment in Mei.com.It is anticipated Mei.com will exert its advantages to create synergy with Tmall in providing more premium luxury goods to consumers.
B )Alibaba investment in Paytm: Chinese e-commerce giant Alibaba Group Holding Ltd is also in advanced talks to invest in Indian online payment platform and e-commerce firm Paytm.Alibaba’s financial arm Ant Financial, which runs the Alipay online payment platform, is already an investor in Paytm’s parent.Under the new deal Alibaba plans to directly invest around $600 million for a share in Paytm.
Possible risks involved in investing in ALIBABA:
In the past many issues have been raised regarding the accuracy of the accounting
policies of Chinese firms and Alibaba is no stranger to these situations. The company has been on the radar for
possible problems that include counterfeit
goods and corruption.
Yahoo has recently spin off its Small Business unit as part of the spinoff of its stake in Alibaba Group Holding. Yahoo Small Business helps small enterprises set up and run their businesses online.Yahoo went for a tax-free spinoff of its 15 percent stake in China’s Alibaba into a newly formed independent registered investment company (Aabaco holding) responding to pressure to hand over to shareholders its prized e-commerce investment valued at roughly $40 billion.
Alibaba Initiatives to diversify its operations beyond the e-commerce market:
According to a report from the Wall Street Journal Alibaba has struck a deal with China’s (FXI) Hunan Satellite Television and DMG Entertainment to provide Chinese consumers with gaming, TV content, and films. This service will be offered through Alibaba’s Tmall e-commerce platform.
Alibaba is also planning to launch its video streaming service, Tmall Box Office, in China. Alibaba with this move is clearly looking to leverage China’s booming online video market. According, China’s online video market has grown at a fast year-over-year rate in excess of 60% in the last few quarters and this shows huge potential for Alibaba to grow.
Singapore Post Limited and Alibaba Group Holding Limited have recently signed a joint venture as a part of series of new initiatives for collaboration and growth. This collaboration aims to build an e-commerce logistics platform to service the rapidly growing e-commerce businesses across Asia Pacific and beyond.
PEER TO PEER ANALYSIS
Source: Yahoo finance
The direct competitors of Alibaba are Amazon and Ebay and it clearly score over its peer in terms of its financial performance.An analysis of the financials is indicative of immense growth potential of the company. The revenue growth for the quarter ended March,2015 is highest for Alibaba which is around 45%.The TTM PE ratio is much higher than Ebay. Such a high PE ratio indicates lot of future growth opportunities. Alibaba has also reported highest TTM operating margin of 31%.
Alibaba stock may be down in 2015, but this is one of the best long-term buys on the market. The company’s market is growing extremely fast. It also has sound financials and an innovative leader. It is anticipated that Alibaba will become a $1 trillion company by 2020.Few reasons which makes Alibaba a strong buy are:
Firstly, Alibaba is gaining strong footing in its home market in China as people there are enthusiastically joining the Internet revolution. Besides, development of easy-to-use mobile commerce has given Alibaba a strong tailwind. In 2014, Alibaba’s network of sites handled roughly 80% of all online transactions in the China. New research from AT Kearny estimates Chinese e-commerce is growing at an incredible rate and will total $718 billion by 2017. A recent study by the China Internet Network Information Center (CNNIC) determined the number of Internet users in the country will hit 800 million by 2016 or sooner.
Secondly, Alibaba has invested heavily in its mobile development. In February, it spent $590 million on a minority stake in the Chinese smartphone maker Meizu. Before that, Alibaba spent $1.9 billion on the mobile web developer UCWeb. The company even put $215 million for a minority stake in the messaging app Tango. These purchases are going yield returns to the company in long run.
Thirdly, Gross merchandise volume (GMV) of the company from mobile platform has increased considerably. There has been a yearly increase of 95% in mobile active users. These numbers will continue to grow for the next several years as more and more consumers will switch to mobile.
The next reason is solid financial base.The company has shown excellent financial performance in terms of EPS, revenue growth and operating margins. The company has more than $6 billion in operating cash flow, which provides flexibility for acquisitions.
Fifth reason is backing by a competent management team. The management is trying to build a paradigm-shifting, rule-breaking company. They’re trying to create innovative means of doing things.
Last but not the least the triple –digit profit forecast makes this stock a strong buy. Alibaba under the visionary leadership and growth trajectory could become a $1 trillion company by 2020. This implies investors who buy it now could see gains of 400% in the next five years. The company promises a huge long term potential. The stock could remain volatile in the short term. This isn’t just a stock to buy for 2015.This is a great investment for years to come.
ALIBABA outlook for 2015