Company overview
Alibaba is the biggest e-Commerce player in China, the parent company of popular apps such as Taobao, Tmall, and Alipay. E-commerce industry in China is experiencing a secular tailwind from new users in lower-tier cities as well as increasing GMV (Gross Merchandise Volume) per users as users transact digitally more often / in higher ticket-price categories. Alongside their e-Commerce business, the Company also have the biggest cloud computing business in China, Aliyun, which provides mission-critical Platform / Infrastructure-as-a Service offerings to its clients. Apart from these two key businesses, Alibaba is also a ~33% owner in Ant Financial, as well as the owners of a number of innovative businesses including Cainiao (Alibaba’s proprietary logistics business), Ele.me (2nd biggest food delivery business in China), Lazada (one of the biggest Asian e-Commerce platform).
Competitive advantages
As one of the earliest movers / largest players in growth industries such as e-Commerce, cloud computing, financial technology, etc., we believe Alibaba has strong competitive advantages. In order to stay ahead of competition, Alibaba has invested heavily in areas such as live streaming e-Commerce, cloud computing operating system / servers / chips / networks, smart / digital logistics, etc.
Source: Company website
Valuation
Based on our estimate, the current share price essentially implies one is paying for the Company at 28-29x 2021e e-Commerce earnings, and essentially getting the other businesses (ie. cloud computing, food delivery, Ant Financial, etc.) for free, not to mention the cash that is sitting on the Company’s balance sheet. We see material upside for the Company as long as regulatory headwinds do not get worse.
Risk
Regulations,
increasing competition in e-Commerce, inability to monetize leading position in
cloud-computing
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