I agree on your bullish stance of Alibaba. Although you overstated China's growth factors considering it's high youth unemployment rate, and mounting pressure in e-commerce from micro video channels. China's post COVID recovery looks sluggish at best for 2023. Alibaba's pivot and separation from its cloud business is worrisome. The cloud business was its best asset. Competition is ramping up from companies that understand the younger Chinese consumer a lot better than Alibaba does. So while I think the stock is undervalued, there are many important caveats.
1. The high youth unemployment is one of the biggest problems China faces to date. While these are highly educated people, there is a lack of positions in the job market for these people. We will see, but I think that China will also solve this problem.
2. The cloud market is expected to grow at an rate of 25-30% p.a. in China, maybe Alibaba is not going to dominate the market completely, but they will definitely get a large peace of the pie. If we look closer, also companies like Amazon hade horrible numbers for the cloud business in the last quarter.
“Cainiao, the logistics network of Alibaba, is expected to be listed on the Hong Kong Stock Exchange in an initial public offering (IPO) by the end of the year. A valuation of around 20 billion US dollars is aimed for for the logistics branch. Cainiao Network Technology Co. works with China International Capital Corp for IPO. (CICC) and Citigroup together.
Cainiao would also be the first of the six business units spun off from the Alibaba Group to seek an independent IPO.“
Thanks! It does not really say what happens to the ADR holders even for the Cainiaos IPO. We will see and I am holding ADR holders can benefit from the IPOs.
We don’t know it exactly (yet), but I would assume that every shareholder of $BABA will get shares of the new companies. Thought this Alibaba would *maybe* still own shares in all the businesses. This would transform into a holding company, holding stakes in all the 6 entities.
But I can be different. We should find out more in the next few months.
Great Write Up. I think the optionality provided by the other aspects of the retail business are undervalued, though I would question 11% revenue growth on your valuation.
I'm particularly interested in Trendyol which has a leadership position in several countries. I'm long, though I wonder if we will see the revenue growth of the past ever again.
I think that 11% is actually conservative. If you consider the fact that Alibaba is one of the top cloud companies in China and the world. This market alone is expected to grow 25-30% p.a. for the foreseeable future.
I agree on your bullish stance of Alibaba. Although you overstated China's growth factors considering it's high youth unemployment rate, and mounting pressure in e-commerce from micro video channels. China's post COVID recovery looks sluggish at best for 2023. Alibaba's pivot and separation from its cloud business is worrisome. The cloud business was its best asset. Competition is ramping up from companies that understand the younger Chinese consumer a lot better than Alibaba does. So while I think the stock is undervalued, there are many important caveats.
1. The high youth unemployment is one of the biggest problems China faces to date. While these are highly educated people, there is a lack of positions in the job market for these people. We will see, but I think that China will also solve this problem.
2. The cloud market is expected to grow at an rate of 25-30% p.a. in China, maybe Alibaba is not going to dominate the market completely, but they will definitely get a large peace of the pie. If we look closer, also companies like Amazon hade horrible numbers for the cloud business in the last quarter.
Thank you for the comment 🙏
15% discount rate is a way too high! What would be value with for instance 10% discount rate?
Hi,
I personally always apply a discount rate of 15% because I want to make 15% p.a.
But at an discount rate of 10% the intrinsic value currently is around 166$. Or +90% from current levels.
What happens to the Nasdaq $baba shareholders after the splits?
This is from an article I found online:
“Cainiao, the logistics network of Alibaba, is expected to be listed on the Hong Kong Stock Exchange in an initial public offering (IPO) by the end of the year. A valuation of around 20 billion US dollars is aimed for for the logistics branch. Cainiao Network Technology Co. works with China International Capital Corp for IPO. (CICC) and Citigroup together.
Cainiao would also be the first of the six business units spun off from the Alibaba Group to seek an independent IPO.“
Thanks! It does not really say what happens to the ADR holders even for the Cainiaos IPO. We will see and I am holding ADR holders can benefit from the IPOs.
We don’t know it exactly (yet), but I would assume that every shareholder of $BABA will get shares of the new companies. Thought this Alibaba would *maybe* still own shares in all the businesses. This would transform into a holding company, holding stakes in all the 6 entities.
But I can be different. We should find out more in the next few months.
Great Write Up. I think the optionality provided by the other aspects of the retail business are undervalued, though I would question 11% revenue growth on your valuation.
I'm particularly interested in Trendyol which has a leadership position in several countries. I'm long, though I wonder if we will see the revenue growth of the past ever again.
I think that 11% is actually conservative. If you consider the fact that Alibaba is one of the top cloud companies in China and the world. This market alone is expected to grow 25-30% p.a. for the foreseeable future.
Thank you for the support and the suggestion 🙏