Alibaba Is Extremely Undervalued And Has Great Growth Potential
- Alibaba is priced at an attractive valuation, when based on price-to-earnings growth metrics.
- More than 70% of total e-commerce volume in China goes through Alibaba.
- I project that the stock will trade at $152 by 2015.
Forget Cyber Monday, Singles Day Is The Focus For Alibaba
- Singles Day is a huge holiday for Alibaba and it is 2.5 times the size of Cyber Monday.
- This will generate sales growth for this quarter.
- This will also generate positive headlines which could help investor sentiment on the stock.
In Spite Of Its Mobile Growth, Mobile Monetization Concerns Continue To Linger For Alibaba
- Alibaba's signs of prominence are strong with a massive gross merchandise volume and an expanding rate of active growth buyers.
- Alibaba's mobile growth shows in the fact that its mobile revenues have grown as a percent of the firm's total revenues and mobile GMV as a percent of Total GMV.
- In spite of the fact that the firm's Q2 2014 mobile revenue increased 923% year-over-year, Alibaba's mobile monetization rate was still a paltry 1.49%.
- Alibaba's IPO: What's really for sale?
- Arguments against Alibaba are not well founded.
- Analyzing the dips soon after the IPOs.
- Other potential investing opportunities.
- Observe the market: Speculators can prophesy but at the end of the day its the market that decides the real price.
- The IPO price is going to be nowhere near the price Alibaba opens at.
- The valuation which is already placed on the company is beefy.
- A small markup of the IPO price and final pricing at $68 shows little confidence.
- Largest online and mobile commerce company in the world in terms of gross merchandise volume in 2013.
- Operates its marketplaces as a platform for third parties, and does not engage in direct sales, compete with merchants or hold inventory.
- Q2 '14 vs Q2 '13: +46% revenue; +26% operating income; 60% adjusted net income; +74% free cash flow.
The Fundamentals Of Stock Ownership: Amazon And Alibaba
- Amazon trades at high market price relative to cash flows and profitability.
- Amazon investors make the specious claim that Amazon "reinvests profits in the business", however even under the most optimistic scenarios, AMZN would yield free cash of less than 3 percent.
- Meanwhile, Alibaba's upcoming hyped up IPO offers ownership not of the company, but a VIE in the Cayman Islands.
- Insight from Amazon & Alibaba reveals how investors can often forget the fundamentals of stock ownership and move their money into dangerous territory.
- Alibaba's IPO is expected to be priced at 24x future earnings and raise $24 billion.
- The company receives nearly 90% of its revenue from commerce in China.
- To meet earnings expectations, the company must expand beyond its home market.
- Alibaba's plans to grow through acquisition and by tapping into the 50 million consumers of Chinese descent living abroad is a winner.
What Is Alibaba's Growth Potential? eBay's Path Offers A Glimpse
- Alibaba’s disclosure doesn't provide enough detail to model the company accurately. In order to understand the company’s growth potential, it helps to compare Alibaba to eBay.
- Alibaba is the largest online and mobile commerce company in the world in terms of Gross Merchandise Volume (GMV), but only monetizes a very small portion of its transaction volume.
- Alibaba's growth potential is massive if the company can increase its revenue as a percentage of GMV like eBay has done since 1999.
- Based on my estimated value of Alibaba after the IPO, an annual growth rate of free cash flows higher than 18% may be sustainable in the S&M term.
- The group is experimenting a strong growth rate in active buyers.
- They conduct their business in China through subsidiaries and variable interest entities.
- Alibaba's IPO is heavily oversubscribed with investors eagerly awaiting allocations and final pricing.
- Several institutional investors have requested individual orders over $1 billion.
- It is expected that pricing will be above the initial range of $60-$66/share and closer to $70 (or higher?).
- We have back-solved the FCF growth rates required to justify various share prices ($65-$80/share). Investors can decide if the required growth rates seem reasonable.
- Pricing and early trading will be driven by supply/demand, not intrinsic value.
- Alibaba is seeking a valuation between $147.9 billion and $162.7 billion, which would make it the largest IPO in the U.S. to date.
- Alibaba's growth potential in China remains strong even without expanding further into the international market.
- There are several potential red flags and risks regarding the Alibaba Partnership, its variable interest entities, its Alipay arrangement and its accounting procedures.
- I believe the company would be a bargain if the IPO is priced around $147.9 billion or lower based on the low-end offering price of $60 per share.
There are no Transcripts on BABA.
Yesterday, 6:15 PM
- With a market cap of $233.9B as of today's close, Alibaba (NYSE:BABA) is the 4th-most valuable tech company on the planet, behind only Apple, Google, and Microsoft. Nonetheless, many on the Street have argued shares are fairly valued or undervalued.
- Cantor, which started coverage with a Buy and $90 target earlier this week: "We believe that a differentiated pricing model, strong brand, and unmatched scale give Alibaba an unfair competitive advantage relative to peers ... While the stock's not cheap, we believe the company's outsized growth and margin profiles, if sustained, should support higher valuation over time."
- Wedbush, whose $80 target has already been surpassed, thinks "Chinese e-commerce appears to have room to grow at 30%+ for several years." CRT Capital's $95 target implies a multiple of 26x 2016E EPS, something it considers justified given a 35%+ revenue CAGR is forecast for 2014-2017.
- On SA, Triton Research observes Alibaba's 2013 marketplace revenue as a % of GMV (3.1%) was a tiny fraction of eBay's (19.3%), leaving plenty of room for growth even if eBay-like monetization isn't feasible in China.
- Value Record is more cautious, viewing Alibaba's VIE legal structure as a risk and questioning how successful its international expansion plans will be - Baidu and many other Chinese Web names have had a rough time trying to replicate their domestic success.
- Yahoo (YHOO -2.7%) closed lower, albeit off the day's lows. With shorts having trouble borrowing Alibaba shares, some may have settled for shorting Yahoo instead.
- Josh Brown thinks Yahoo's pending IPO windfall and large remaining Alibaba stake once more make it a prime target for an activist. "There is absolutely no way, in my opinion, they're going to allow this management team, this board of directors to take $6 billion, do a buyback and then have another free $6 billion in cash to experiment."
Yesterday, 12:46 PM
Yesterday, 12:10 PM
- After peaking at $99.70, Alibaba (NYSE:BABA) has reversed course and is now at $92.14, slightly below an opening trade of $92.70. Shares are still 35.5% above their $68 IPO price.
- Yahoo (YHOO -3.5%) has reversed course as well. 121M Alibaba shares have already changed hands. Yahoo's volume for the day has reached 90M, more than 3x the company's daily average.
- Prior Alibaba coverage
Yesterday, 12:01 PM
- Alibaba (NYSE:BABA) opened at $92.70 and has quickly jumped to at $99, up 45.6% from a $68 IPO price. Its market cap stands at a whopping $246.6B (66x FY14 EPS), as investors bet the company's strong top-line growth (46% Y/Y in Q2) won't let up.
- Yahoo (YHOO +1.2%) remains higher. With underwriters expected to exercise a 15% overallotment option, the company will be selling 140M shares through the IPO, good for pre-tax proceeds of $9.5B. Yahoo's remaining stake (261.8M shares) has a current pre-tax value of $25.9B.
- SoftBank's (OTCPK:SFTBF) 797.7M-share stake has a current pre-tax value of $79B.
- Prior Alibaba coverage
- Prospectus, IPO preview
Yesterday, 10:54 AM
- At the midpoint of the range, Alibaba (NYSE:BABA) would be worth $218B, more than Facebook and all other Internet companies not named Google.
- The NYSE says underwriters will likely exercise the IPO's 15% overallotment option. That would increase the offering's total size to $25B, with Alibaba raising $10.1B for itself (existing shareholders would reap the remaining proceeds).
- Prior Alibaba coverage
- Update (11:00 AM): Make that $88-$90.
- Update 2 (11:05 AM): The range is now at $89-$91.
- Update 3 (11:17 AM): It's now at $90-$91. Trading is expected to start soon.
- Update 4 (11:24 AM): $91-$92.
- Update 5 (11:28 AM): $92-$93.
Yesterday, 10:14 AM
- All signs suggest Alibaba (NYSE:BABA) will open well above its $68 IPO price. At $80/share, the company would be worth $197B.
- Yahoo (YHOO +1.4%) is trading higher. Shares have already priced in some positive Alibaba-related news since mid-July.
- Update (10:21 AM): Alibaba is now indicated to open in an $82-$85 range.
- Update 2 (10:30 AM): The range is now up to $84-$87.
- Update 3 (10:44 AM): It's now up to $86-$88.
Thu, Sep. 18, 5:30 PM
- Alibaba's (Pending:BABA) IPO price is at the high end of a $66-$68 range. The Chinese e-commerce giant is valued at $167.6B - 20x FY14 (ended March '14) sales and 45x FY14 earnings.
- Yahoo (NASDAQ:YHOO) +0.5% AH. Alibaba begins trading tomorrow.
- Related tickers: OTCPK:SFTBF, OTCPK:SFTBY
- Prior Alibaba coverage, prospectus
Thu, Sep. 18, 11:19 AM
- CNBC reports Alibaba (Pending:BABA) plans to price its IPO within its elevated $66-$68 range, and that advisors have recommended a $68 price.
- At $68, Alibaba would be worth $167.6B. IPO proceeds would total $21.8B, of which $8.4B would go to Alibaba itself (minus underwriter fees). Official pricing is expected later today.
- Yahoo (YHOO -1.4%) has slipped on the report. The company is selling 121.7M shares through the IPO (worth $8.3B pre-tax at $68), and will be left with 401.8M afterwards (worth $27.3B pre-tax, and good for a 16.3% stake).
Thu, Sep. 18, 3:55 AM
- Concluding its two-week road show that drew strong demand worldwide, Alibaba (Pending:BABA) is expected to price its shares after today's market close.
- At the top end of the Chinese e-commerce company's $66-$68 IPO price range, the IPO would raise almost $22B. Underwriters can also exercise an option to sell more shares, which would then top Agricultural Bank of China's record $22.1B listing in 2010.
- Shares will begin trading tomorrow on the NYSE, under the ticker BABA.
Wed, Sep. 17, 6:35 AM| 2 Comments
Mon, Sep. 15, 4:36 PM| 8 Comments
Mon, Sep. 15, 1:21 PM
- Maybe looking to raise cash with which to buy Alibaba (Pending:BABA) this week, investors are dumping a wide swath of other Chinese internet names.
- Qihoo (QIHU -2.6%), Sohu.com (SOHU -5.3%), Baidu (BIDU -3.8%), Sina (SINA -4.9%), Renren (RENN -4%), Weibo (WB -11.3%), YY (YY -7.3%).
- Previously: Alibaba to boost IPO size
Mon, Sep. 15, 4:21 AM
- Alibaba (Pending:BABA) is planning to increase the size of its IPO due to strong investor demand.
- Previously setting a $60-$66 price range per share, the Chinese e-commerce company plans to announce the new price range as early as today, and intends to raise the top end of the price range to above $70, Bloomberg reports.
- Alibaba is expected to set a final price for the shares on Sept. 18, with trading to begin the next day.
Fri, Sep. 12, 8:16 AM
- Its road show barely begun, Alibaba (Pending:BABA) is closing the books on its IPO, reports Bloomberg, as the offering has been covered at all price points.
- It's no surprise, says CNBC's Dan Nathan, as a hedge fund friend told him the IPO was already pre-sold to mutual funds. The road shows's purpose, he says, is to generate media hype so U.S. retail investors show up in the after-market.
Thu, Sep. 11, 6:35 PM
- Alibaba (Pending:BABA) is started with an Outperform rating and $80 price target at Wedbush, where analyst Gil Luria sees potential gross merchandise volumes greater than Amazon and eBay combined.
- Wedbush foresees growth in Chinese e-commerce at 30%-plus for several years based on low penetration and leapfrogging of offline commerce, and views BABA’s competitive position as sound given its network effect and scale advantages.
- Meanwhile, several companies that have filed IPOs are waiting for Alibaba to make sure they aren't hit with an IPO market freeze as happened with the Facebook IPO; sidelined companies include solar installer Vivint Solar, internet company GoDaddy, and online storage Box Inc.
Wed, Sep. 10, 10:40 PM
- The guessing game has started over which U.S. companies Alibaba (Pending:BABA) might pursue after it becomes flush with IPO cash.
- If Alibaba's borrowing power is factored in, estimates for its total spending capacity range as high as $50B.
- Lion's Gate (NYSE:LGF), Red Hat (NYSE:RHT), and Akamai Technologies (NASDAQ:AKAM) have all been bantered around as potential targets.
- Though a long shot, the case for Yahoo (NASDAQ:YHOO) being in the mix is also intriguing. There's $12B in tax savings generated from Alibaba buying Yahoo - instead of Yahoo selling off its post-IPO stake in the Chinese company and paying the tax bill.
- Alibaba debuts on the NYSE on September 19.
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