March 06, 2022 - 11:05pm EST by
2022 2023
Price: 100.60 EPS 0 0
Shares Out. (in M): 2,690 P/E 0 0
Market Cap (in $M): 272,000 P/FCF 0 0
Net Debt (in $M): -74,000 EBIT 0 0
TEV (in $M): 198,000 TEV/EBIT 0 0

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The 3rd largest Chinese stock Kweichow Moutai – a liquor company – returned ~8x over the 5 years following a worse regulatory debacle in 1H2016 than Alibaba currently. Since 2014 IPO, Alibaba (BABA/9988.HK) has 14-15x its revenue and 6-7x its FCF and EBITDA, yet trades <10% above its 2014 IPO price. Alibaba is the Amazon of China and while US investors and sell side analysts at banks indiscriminately obsess with infatuation over AMZN that is one of the last – or the last of the big tech companies – trading at 50-60x earnings while also burning up to tens of billions in consolidated FCF over the past 4-5 quarters with another negative FCF quarter expected in Q1, you can buy shares of Alibaba at 9-10x depressed earnings on depressed macro. If growth resumes – as expected – to 20%+ while the multiple re-rates to at least 20-30x, then BABA/9988.HK can 4-6x from here. Asymmetrical risk/reward.


Alibaba has 50% e-com market share, multiples higher margins than #2 player JD somewhere with 20% share. This business alone could be $200+/share vs. $100 today. JD has a goal of 100mm subs over the next year while Alibaba added over 60mm two quarters ago and over 40mm this past quarter. Despite this, the business is switching from growing number or products sold to growing from ARPU since it has >80% of China’s Internet population & 25-30%+ of disposable income spent. This should accelerate as the Chinese economy is better managed than the US: i.e. China GDP growth 2-3x US (during 2020 China +3.5% yoy vs. -2.2% US), China easing while US raising rates, Chinese inflation ~1% vs. ~8%+ US, US stocks divided by GDP is 200% vs. 80-90% China, etc.


Alibaba is the toll both where Chinese consumers buy and sell goods and even bearish people view it as a “utility” despite trading for less than Chinese utilities and for similar multiples to US telecom triopoly: Verizon/AT&T/T-Mobile.


In cloud, AliCloud (~35-40% market share) is 2x bigger than second biggest player Tencent and growing significantly fast 30-40% when removing the noise of one customer who left a few quarters ago. The company led the world in catching a software flaw recently:


Before the industrial revolution, China led the world for 18+ centuries in a row. If you read history, it would be a centuries long mean reversion for their economy to overtake all others and past US presidents for decades have seen this, written about it and have been fearful of it. China GDP could be 2-3x US by end of the decade.


Since this is a well-followed stock and since these statements are publicly available facts that are overlooked, VIC users are also probably familiar with Charlie Munger, Larry Fink, Goldman Sachs/JP Morgan, etc. buying up the stock and their comments.


Bear cases are predicated on 1) regulatory, which is mostly backward looking, 2) macro, which is improving according to data, 3) competition, which is overstated, and 4) politics over economics, which is a reasonable worry and best articulated among all the noise from Soros himself:

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.


Sheer value combined with high growth, market normalizing after a bear market, easing from Chinese central banks and governments, regulatory becoming even less of a concern, macro improving given even 2020 numbers saw positive GDP growth as previously mentioned, time. (Legend uses BABA pricing.)


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