Alibaba Stock Valuation - Is BABA Undervalued?

in this video we're going to value alibaba stock the largest e-commerce company in the world by gmv following the halt of alibaba's ant group ipo and e-commerce investigation probe alibaba stock is trading at 226 dollars per share about 30 lower from its previous all-time high of 319 per share in october 2020. alibaba is a pretty complex business so to reflect the value of alibaba's different business segments we'll use a sum of the parts valuation model a sum of the parts valuation involves valuing a company by assessing the value of each business segment separately and then adding them up let's start by analyzing alibaba's core commerce segment which made up 87 percent of alibaba's total revenue in the nine months ending december 31st 2020. the two main businesses within this segment are taobao and tmall which made up 46 percent of alibaba's overall revenues with 21 percent year-over-year growth taobao is a consumer-to-consumer marketplace which provides mostly individuals and small businesses with a platform to sell their products meanwhile tmall is a business to consumer marketplace which provides over 250 000 brands and merchants with a platform to sell their goods to consumers together taba and tmall reported over 902 million monthly active users across their platforms and have the largest domestic ecommerce market share from these two businesses new e-commerce initiatives include taobao deals alibaba's consumer to manufacturer ecommerce platform that focuses on more price conscious shoppers in lower tier cities in 2020 table deals had over 100 million annual active users across its platform other initiatives include taobao live a service that allows sellers to feature products through e-commerce live streaming and taobao grocery its online grocery business in 2020 the samr launched an investigation regarding alibaba's choose one of two practice however this is unlikely to have a material impact on alibaba's revenues and earnings in the long run moreover despite facing increasing competition from e-commerce competitors jd.com and pindodo alibaba looks to maintain strong growth within the overall e-commerce industry e-commerce is not winner-take-all as consumers use multiple e-commerce platforms including alibaba jd and pindodo this is because each platform has its own unique customer proposition in addition high growth of the overall domestic ecommerce industry will likely offset potential e-commerce market share loss for alibaba to jd and pindodo moreover despite recent market share decline alibaba is still competing effectively against jd and pindodo in specific areas for example alibaba is well positioned in luxury ecommerce through its partnership with farfetch who previously had partnered with jd.com meanwhile taobao deals and its community group buying initiatives are not to be underestimated compared to jd pindodo meituan and other competitors beyond its domestic retail marketplaces alibaba operates many other commerce businesses as well including sun art a hypermarket freshipo or homa a new retail grocery train with over 200 stores and team all global its global marketplace this segment made up 20 of alibaba's total revenue with 78 year-over-year growth for international retail commerce aliexpress and lazada are the two main businesses to focus on aliexpress is a global export marketplace with 150 million users which allows domestic brands to deliver products internationally meanwhile lazada is a leading e-commerce platform and logistics network in southeast asia for small medium enterprises with 70 million customers international retail commerce made up five percent of alibaba's total revenue with 32 year-over-year growth for wholesale commerce alibaba.com and 1688 are the main businesses to focus on alibaba.com is the largest international wholesale marketplace by revenue meanwhile 1688 is a major domestic wholesale commerce platform international wholesale commerce made up two percent of total revenue with 47 year-over-year growth while domestic wholesale commerce made up two percent of total revenue with 14 year-over-year growth for logistics alibaba operates taino a logistics data platform and global fulfillment network that offers domestic and international logistics services in addition to supply chain management solutions tanya logistics services contributed 5 to alibaba's total revenue with 58 year-over-year growth alibaba's main consumer service businesses include ulama and kobe which provide food delivery restaurant guides and more consumer services make up five percent of alibaba's total revenue with 18 year-over-year growth the last of alibaba's core commerce businesses is alibaba health which sells pharmaceutical and healthcare products and also provides an online healthcare platform this segment made up two percent of alibaba's total revenues with 68 year-over-year growth the majority of alibaba's core commerce businesses are profitable except for a select few this includes oma lazada new retail initiatives and sanyo to start ulamo's food delivery business has low margins to begin with and with alibaba competing heavily with matuan on price this results in negative profitability for ulima in southeast asia lazada competes heavily with shoppi which is the e-commerce platform operated by c limited due to investments and price subsidies this business is also loss making meanwhile new retail initiatives and thai now require high capital expenditures explaining the lack of profitability in these businesses in the nine months ending december 31st 2020 overall core commerce revenues increased 34 percent year over year with adjusted ebata increasing 19 year-over-year adjusted eva to margins or 35.6 to estimate the value of alibaba's core commerce business we'll apply a 20 times price to earnings multiple on alibaba's 2022 fiscal year earnings estimates for core commerce this gives us an estimated fair value of 754.7 billion dollars for this business segment next we'll discuss alibaba cloud the largest domestic cloud infrastructure provider with around 40 market share with its strong market positioning and high switching costs alibaba looks to remain a leader in the domestic cloud market moving forward in the nine months ending december 31st 2020 alibaba cloud made up eight percent of total revenues increasing 56 percent year-over-year what's important to know is that alibaba cloud reported positive adjusted ebitda profitability for the first time in 2020 alibaba cloud is expected to be a major growth driver for alibaba with increasing margins moving forward to estimate the value of alibaba's cloud business we'll apply a 10 times price to sales multiple on alibaba's 2022 fiscal year revenue estimates for cloud this gives us an estimated fair value of 131.2 billion dollars for this business segment next we have the digital media and entertainment segment main businesses in this segment include yoku and alibaba pictures youku is an online video and streaming platform that has user generated videos live shows movies documentaries and more meanwhile alibaba pictures is a film company that covers content production promotion distribution cinema ticketing and more for the entertainment industry in the nine months ending december 31st 2020 digital media and entertainment made up four percent of total revenues with six percent year growth this entire segment is unprofitable reporting negative adjusted ebata in 2020 however losses are decreasing as this segment appears to be approaching profitability to estimate the value of this business we'll apply a three times price to sales multiple on alibaba's 2022 fiscal year revenue estimates for digital media and entertainment this gives us an estimated fair value of 15.3 billion dollars for this business segment now that we've covered alibaba's main businesses we'll also value alibaba's investments alibaba is one of the largest investors in the world having invested billions of dollars across over 200 companies some of its major investments include farfetch the world's largest luxury e-commerce platform billy billy a leading video and gaming platform tokopedia one of the largest consumer to consumer e-commerce marketplaces in southeast asia and x-pen motors an electric vehicle manufacturer to calculate the value of all of these investments we added the december 31st 2020 book value of alibaba's equity securities and other investments and investment in equity method investees together this results in a fair value of about 66 billion dollars for alibaba's investments however we'll also apply a 40 holding company discount to this fair value this holding company discount is applied to take into consideration taxes and potential illiquidity of some of these investments as a result we estimate the fair value of alibaba's investments to be around 39 billion dollars lastly we'll calculate net cash by adding cash and cash equivalents and short-term investments and subtracting short and long-term debt from this we calculate that alibaba has about 52 billion dollars in net cash finally we'll add up our estimate of each of alibaba's business segments in addition to investments and net cash to estimate the fair value of the company we valued core commerce at 754.7 billion dollars cloud at 131.2 billion dollars digital media and entertainment at 15.3 billion dollars investments at 39.7 billion dollars and net cash at 51.9 billion dollars together this results in a total fair value of 992.7 billion dollars for alibaba next to calculate the fair value per share we need to divide this fair value by the total amount of shares outstanding adjusting for the fact that one ads represents eight shares of alibaba we land at a fair value per share of 364 dollars comparing this to alibaba's stock price of 226 dollars this represents a 61 upside in alibaba stock that being said let's also look at a more bearish scenario in this alternative valuation we have the core commerce price to earnings multiple contracting to 18 times in addition to experiencing slower than expected growth and lower margins this results in a fair value of 627.6 billion dollars for core commerce compared to 754.7 billion dollars in our base case for alibaba cloud assuming the business can't sustain its market share or profitability we've marked this business down to a fair value of zero for digital media and entertainment we marked this business to be negative 10 billion dollars in fair value assuming declining growth and continued cash burn due to competition rather than eventually becoming a source of profitability we also marked all of alibaba's investments and net cash to a fair value of zero this bearish scenario would result in a fair value of 617.6 billion dollars or 226 dollars per share for alibaba which is what the market is currently valuing the company at for more videos like this subscribe to the channel leave a like and comment down below what companies you'd like to see next

Channel: Anivestor

Views: 4,301

Rating: 5 out of 5

Keywords: Alibaba, BABA, Alibaba stock, BABA Stock, Stock Analysis, Alibaba stock price, Alibaba stock analysis, BABA Stock analysis, Alibaba stock forecast, alibaba stock valuation, Investing, Investment, Alibaba analysis, How big is alibaba, Stock, Business, Company, Technology, Retail, Ecommerce, Online retail, Growth stock, Alibaba earnings, Anivestor, Alibaba valuation, alibaba stock prediction, sotp valuation, alibaba sotp valuation

Id: eDA42q02pyk

Length: 11min 16sec (676 seconds)

Published: Mon Mar 08 2021