Can Alibaba Group Holdings Ltd Grow For Another 82 Years?

On 17 September 2014, Alibaba Group Holding Limited (Alibaba), China’s most well-known ecommerce giant, has officially listed its shares on the NYSE at IPO price of US$ 68.00 per American Depository Share (ADS). As I write, its stock is trading at US$ 182.14 per ADS, more than 2½ times its IPO price in 4 years.

In this article, I’ll cover its fundamental strengths, its latest financial results and valuation figures based on its current price of US$ 182.14 per ADS on 20 March 2019. Therefore, here are 13 things to know about Alibaba before you invest.

• Revenue Breakdown
  In 2018, Alibaba has reported RMB 250.3 billion in group revenue from 4 key business segments. Its sales breakdown is as follows:
  
  

No.	Business Segments	Revenue 2018(RMB Billion)	Revenue 2018(%)
1	Core Commerce	214.0	85.5%
2	Cloud Computing	13.4	5.4%
3	Digital Media & Entertainment	19.6	7.8%
4	Innovation Initiatives & Others	3.3	1.3%
Total Revenues in 2018	250.3	100%

Source: Alibaba’s Annual Report 2018

• Business Segment 1: Core Commerce
  Alibaba derives income from a portfolio of ecommerce platforms, both retail and wholesale, mainly in China. Currently, Alibaba is also building its presence in the global market. The following is a list of brands which is operating under the ecosystem of Alibaba:
  
  
  
  

ChinaCommerceRetail	ChinaCommerceWholesale	International CommerceRetail	InternationalCommerceWholesale
– Taobao.com – Cun.taobao.com- TMall.com – chaoshi.tmall.com- TMall Global- Juhuasuan.com- Freshippo – Intime Retail- Alimama.com	-1688.com	– AliExpress – Lazada	– Alibaba.com

Source: Alibaba’s Results Presentation Q3 2019


This segment has achieved CAGR of 44% in revenue, growing from RMB 50.0 billion in 2014 to RMB 214.0 billion in 2018. It is attributed to sales growth from its ecommerce platforms over the past 5 years and as well as its inclusion of Cainiao Network beginning in 2018. This segment has remained as the key contributor of income to Alibaba.

Source: Alibaba’s Annual Reports

• Business Segment 2: Cloud Computing
  Presently, Alibaba Cloud offers a complete suite of cloud services which include elastic computing, database, storage, large scale computing, big data analytics, management and application services, security, machine learning platform, IoT services, and network virtualisation services. The segment has achieved CAGR of 104% in revenues, increasing from RMB 773 million in 2014 to RMB 13.4 billion in 2018. As I write, this segment remains unprofitable as it incurred RMB 3.1 billion in operating loss for the year 2018.
  
  
  

Source: Alibaba’s Annual Reports

• Business Segment 3: Digital Media & Entertainment
  Alibaba has established a diverse portfolio of entertainment platforms such as UC, UCNews, Youku, Tudou, Alisports, Alibaba Music, TMall TV, Aligames, and Damai.cn. In 2018, this segment has recorded RMB 19.6 billion in revenue, almost 5x the amount of sales recorded in 2016. But nevertheless, it remains unprofitable as it recorded RMB 14.1 billion in operating loss in 2018.
  
  
  

Source: Alibaba’s Annual Reports

• Business Segment 4: Innovation Initiatives & Others
  This segment includes the development of AliOS, DingDing, amap.com, and TMall Genie. In 2018, it made RMB 3.3 billion in revenues, up from RMB 1.8 billion in 2016. Likewise with Business Segment 2 & 3, it is not profitable as it incurred RMB 6.9 billion in operating loss in 2018.
  
  
  

Source: Alibaba’s Annual Reports

• Group Profitability
  Overall, Alibaba has achieved CAGR of 55% in group revenues, up from RMB 11.9 billion in 2011 to RMB 250.3 billion in 2018. This is attributed to rapid growth in all of its four business segments during the period. In that time, shareholders’ earnings have grown by CAGR of 77%, up from RMB 1.2 billion in 2011 to RMB 64.0 billion in 2018. It is contributed by higher interest & investment income during the 7-year period.
  
  
  

Source: Alibaba’s Annual Reports

• Cash Flow Management
  Alibaba had generated RMB 333.2 billion in cash flows from operations from 2011 to 2018. Out of which, it acquired stakes in many companies where the major ones include:
  
  
  

No.	Companies	Stakes	Purchase Costs
1	Alibaba Health*	48.0%	RMB 50.7 billion
2	Youku	98.0%	RMB 35.1 billion
3	Cainiao Network	51.0%	RMB 33.7 billion
4	Intime Retail	9.9%	RMB 17.8 billion
5	Lazada	54.0%	RMB 6.6 billion
6	Wanda Film	8.0%	RMB 4.7 billion
7	Damai.cn	32.0%	RMB 3.8 billion
8	Beijing Easyhome	10.0%	RMB 3.6 billion
9	South China Morning Post	100.0%	RMB 1.8 billion
10	AGTech Holdings Ltd	53.0%	RMB 1.6 billion

Details as at 31 March 2018

Alibaba Health*
In May 2018, Alibaba agreed to transfer its business related to medical devices, healthcare, and adult products on TMall to Alibaba Healthcare for HK$ 10.6 million, which would settled with 1.8 billion new shares of Alibaba Healthcare. Upon completion, it would increase its interests in Alibaba Healthcare to 56%.

Source: Alibaba’s Annual Reports

• Latest 12-Month Financial Results
  From Q4 2018 to Q3 2019, Alibaba has made RMB 345.3 billion in sales and RMB 69.3 billion in shareholders’ earnings or earnings per share of RMB 26.89 or US$ 4.02.
  
  Figures in RMB Billion unless stated otherwise

Period	Q4 2018	Q1 2019	Q2 2019	Q3 2019	Total
Revenue	61.9	80.9	85.1	117.3	345.3
Earnings	7.6	8.7	20.0	33.1	69.3
EPS (RMB)	2.95	3.36	7.75	12.83	26.89

Source: Alibaba’s Quarterly Reports

• Balance Sheet Strength
  As at 31 December 2018, Alibaba’s non-current liabilities is RMB 141.1 billion and thus, having a gearing ratio of 30.6%. It has current asset of RMB 261.7 billion and current liabilities of RMB 208.8 billion. Hence, it has a current ratio of 1.25.
  
  
  
• Valuation Figures
  As at 20 March 2019, Alibaba is trading at US$ 182.14 per ADS. Thus, it has a current P/E Ratio of 45.31. As at 31 December 2018 (Q3 2019), its net asset value is RMB 180.25 or US$ 26.92 per ADS. Hence, its current P/B Ratio is 6.77.
  
  
  

VIA’s Verdict

Overall, Alibaba has continued to deliver rapid growth in sales and profits to its shareholders after its IPO listing in 2014. Hence, it has caused a rapid growth in market capitalisation over the last 3 years.

Source: Google Finance

As I write, Alibaba is trading at P/E Ratio of 45.31, P/B Ratio of 6.77 and has not paid a single cent in dividends to its shareholders.

Hence, would you invest in Alibaba at US$ 182.14 per ADS?

There is no ads to display, Please add some