Alibaba IPO analysis – $BABA #IPO by Graphitic

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BABA – Alibaba priced 368 million shares at $68, massive deal. Majority of the shares coming from insiders cashing out to the tune of 220 million shares, most coming from Yahoo.

2.465 billion Shares post IPO, market cap at $66 of $167.62 billion. That is a bigger market capitalization than U.S. rivals Amazon.com, which is about $150 billion, and eBay, which is about $64.5 billion.

 Softbank will own 32% post IPO, Yahoo 16%. In most likelihood Yahoo will divest remainder of holdings down the line.

AliBaba is the largest online and mobile commerce company in the world in terms of gross merchandise volume in 2013, according to industry sources. We operate our ecosystem as a platform for third parties, and we do not engage in direct sales, compete with our merchants or hold inventory.

AliBaba operates Taobao Marketplace, China’s largest online shopping destination, Tmall, China’s largest third-party platform for brands and retailers, in each case in terms of gross merchandise volume, and Juhuasuan, China’s most popular group buying marketplace by its monthly active users, in each case in 2013 according to iResearch. These three marketplaces, which comprise our China retail marketplaces, generated a combined GMV of US$248 billion from 231 million active buyers and 8 million active sellers in the twelve months ended December 31, 2013. A significant portion of our customers have begun transacting on our mobile platform, and we are focused on capturing this opportunity. In the three months ended December 31, 2013, mobile GMV accounted for 19.7% of our GMV, up from 7.4% in the same period in the previous year.

“BABA handles 83.75% of all online retail GMV sales in China and also 76.2% of total mobile retail GMV in China.” (For the year 2013)

The above two data points in themselves are enough for me to rate this as a strong buy on the offering.

BABA is the middle man, owner of the Ecosystem operating platform for 3rd parties.

  • Taobao Marketplace, China’s largest online shopping destination

  • Tmall, China’s largest third-party platform for brands and retailers

  • Juhuasuan, China’s most popular group buying marketplace by its monthly active users

For the 12 months ended 2014, AliBaba pulled in $296 billion in sales thru the three platforms, had 279 million buyers and 8.5 million active sellers.

AliBaba’s revenue is primarily generated from merchants through online marketing services (via Alimama, our proprietary online marketing platform), commissions on transactions and fees for online services.

Online shopping represents 7.9% of total China consumption, tremendous room for growth.

Let us look at the numbers:

 Serious money printing operation in my view, to the tune of about $4 billion (FY 2014) every year and only growing.

FY ends 3.31

 

FY ’14 (ended 3/31/14). Strong annual growth, Ecosystem platform driver of scale here and BABA just collects Toll on a portion of all transactions going thru their platform.  Twelve months ending June 30 2014, $8.463 billion in revenues growth of 52%. Margins are impressive super strong, gross margins of 74.5%, operating margins of 51%.  Income Taxes just 12% and net margins of 44%, EPS of $1.61.

FY ’15 – Growth of 50% in FY ’15. $12.7 billion in revenues. Keeping gross margins at 75%, and operating margins at 55% and tax rate at 12%, net margins an astounding 49%. EPS comes in at $2.21. At $68 would trade 30 X’s FY ’14 estimates.

In closing we are looking at an offering which has a near strangle hold on Chinese online sales, on a standard price to sales metric this looks expensive but if you look at the earnings potential the cash flows and the superior leadership with a solid well entrenched Ecosystem the market cap is fairly reasonable. I strongly feel this is one that should be bought and held long term.

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