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9/15/2014 9/15/2015 9/15/2016 9/15/2017 9/15/2018 9/15/2019

BABA S&P 500

NYSE:BABA|CurrentPrice:$166|IntrinsicValue:$214.40|2-YrTargetPrice:$232.00|ImpliedReturn:39%

CompanyProfile

AlibabaGroupHoldingLimitedisaChinesemultinationalconglomerateholdingcompanyspecializingine-commerce,retail,internet,andtechnology.FoundedonApril4th,1999inHangzhou,Zhejiangthecompanyprovidesconsumer-to-consumer,business-to-consumer,andbusiness-to-businesssalesservices.AlibabaGroupHoldingLimitedenablesbusinessestotransformthewaythesefirmsmarket,sellandoperate,andimprovetheireffectiveness.

HistoricalTotalReturn KeyInformation

Sector:ConsumerDiscretionary

Industry:Retail

IPODate:September19,2014

MarketCapitalization:430.11Bn

52-WeekHigh:$195.50

52-WeekLow:$130.60

ROA:8.31%

ROE:14.69%

Beta:1.23

Recommendation

AlibabaGroupHoldingLimited

§ AlibabahasseentheUnitedStates-Chinatradewaranditsassociatedgeopoliticalfalloutexertdownwardpressureonthestockprice.Fromarelativevaluationperspective,thestockiscurrentlytradingatthelowestEV/EBITDA,EV/SALES,EV/GMV,andP/ElevelssinceitsIPO.Weseethisasauniqueopportunitytobuy.

§ Revenueshavecontinuedtorisethroughthetradewar,drivenbyhigherlevelsofGrossMerchandiseVolume(GMV),anincreaseinthenumberofactivecustomers,andanincreaseintheamountspentpercustomer.

§ AlibabahasaggressivelyexpandedintoSoutheastAsia,theMiddleEast,andNorthernAfrica.Successfulmarketpenetrationwillgivethecompanytheabilitytodoubleitscurrentlymonthlyactiveuserstoover1.8billion.

§ AlibabaCloudServicesisthefastestgrowingsubsidiaryontheplatformandmarginsincreased20%in2019FY.WeexpectmarginstocontinuetoriseastheycontinuetodominatemarketshareinAsia.

InvestmentThesis

October15,2019Analysts:CristianoFernandes,JonathanEbberhart,TimothyDavis

2

CompanyBreakdown

Overview

AlibabaGroupHoldingLimitedintends“tomakeiteasytodobusinesseverywhere”.Thecompanyaimstobuildthefutureinfrastructureofcommercethroughthreefundamentalprinciples:“Meet@Alibaba–Weenablecommercialandsocialinteractionsamonghundredsofmillionsofusers,betweenconsumersandmerchants,andamongbusinesseveryday,Work@Alibaba–Weempowerourcustomerswiththefundamentalinfrastructureforcommerceandnewtechnology,sothattheycanbuildbusinessesandcreatevaluethatcanbesharedamongourdigitaleconomyparticipants,andLive@Alibaba–Westrivetoexpandourproductsandservicestobecomecentraltotheeverydaylivesofourcustomers.”Thecompany’sbusinessesarecomprisedofcorecommerce,cloudcomputing,digitalmediaandentertainment,andinnovationinitiatives.Inaddition,AntFinancial,anunconsolidatedrelatedparty,providespaymentandfinancialservicestoconsumersandmerchantsonallAlibabaplatforms.Theyhavebuiltwhattheyrefertoasa“DigitalEconomy”thatconsistsofconsumers,merchants,brandsretailers,third-partyserviceproviders,strategicalliancepartnersandotherbusinesses.Alibabaleveragesitsownsubsidiariestobuttressthedigitaleconomyandincreasetheperformanceofadjoiningbusinessesthroughtechnologicaladvancementsandsynergies.

CORECOMMERCEAlibababreaksdowncorecommerceintoretailcommerce,bothinChinaandinternationally,andwholesalecommerce,bothinChinaandinternationally.AlibabaisthelargestretailcommercebusinessintheworldbasedonGrossMerchandiseVolume(GMV)asofMarch31st,2019.Approximately66%oftotalrevenuesfor2019FYwerefromretailcommerceinsideofChina.‘NewRetail’initiativeswereintroducedtoreengineerthefundamentalsofretail,transformingoperationsandthesellinglandscape.Thegoalistoconvergeonlineandofflineretailbyleveragingdigitizedoperatingsystems,in-storetechnology,supplychainsystems,consumerinsights,andmobileecosystems.AlibabahasmultipleglobalretailmarketplaceswhichenableconsumersfromaroundtheworldtobuydirectlyfrommanufacturersbothinChinaandinternationally.CoreCommercesawa41%year-over-yearincreaseinrevenuesfor2019FYand,aftertherecentacquisitionof33%ofJackMa’sAntFinancial,willhaveover740millionactiveusersinitsDigitalEconomytofuelfuturerevenuegrowthin2020FY.Throughmulti-brandstrategiestoglobalize,Alibabahassuccessfullyintegratedinternationallogisticsandpaymentsolutionsinfrastructuretocontinuetogrowitsinternationalbusiness.Thecompanycurrentlyhas130millionactiveconsumersoutsideofChina.

Lazada:Adominantretaile-commercecompanyoperatinginSoutheastAsiaincludingSingapore,Indonesia,andthePhilippines.

Daraz:FoundedinIndia,itisane-commercecompanycurrentlyoperatinginIndia,Pakistan,Bangladesh,SriLanka,Myanmar,andNepal.

Trendyol:Amobilee-commercecompanybasedinTurkeythatistheleadingplatforminTurkey,theMiddleEast,andNorthAfrica.

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CompanyBreakdown

CLOUDCOMPUTINGAlibabaCloudServicesisthethirdlargestInfrastructure-as-a-Service(IaaS)andinfrastructureUtilityServicesproviderbyrevenueduring2019FY.ItisalsothelargestproviderofpubliccloudservicesinChina,offeringacompletesuiteofcloudservicestoChineseenterprises.Thisconsistsofelasticcomputing,database,storage,networkvirtualizationservices,largescalecomputing,cybersecurity,managementandapplicationservices,bigdataanalytics,machinelearning,andIoTservices.Therewas76%year-over-yearrevenuegrowthforCloudComputingin2019FYand66%year-over-yearrevenuegrowthinthefirstfiscalquarterof2019.Thecompanyisnotfocusingontheprofitabilityofcloudcomputing,butratherthecapabilities.IthasmadeacquisitionstobetteritsperformanceandmarketshareinChina.Alibabaisrelyingonbigdata,substantialquantitiesofwhichaggregatedwithinandusingtheircloudcomputingtechnology,tonotonlybettertheirbusiness,butoutmatchcompetitors.CloudComputingIskeytotheexpansionoftheDigitalEconomy.AlibabahasbeenanointedbytheChinesegovernmenttoleadthesmartcityinitiativeandhybridcloudsystemimplementationrequiredtoadvancethemodernizationofthestate.

Kanbox:Anetworkdiskandsynchronizationtoolusedforfilemanagementandbackup.Therearenotimeorplacelimitations;theonlynecessityisinternetconnectivity.

CloudComputingProgress:ThecontinuedexpansionofcloudcomputingservicesinChinaandabroadwillincreasetheamountofdatahostedbytheAlibabasystemaswellasincreasethenumberofjurisdictionsinwhichtheyhaveinformationtechnologysystems.Bigdataisacatalystforthe‘NewRetail’initiative.Alibabahasdevelopedanddistributedadataanalyticsplatformtoitscustomersthatcanhandlecomplexcomputingtasksofmillionsofgigabytesofdataperday.Thisprovidesdeepdatainsightstosmallerretailersontheplatformthatcannowusethisdaytobetterruntheirbusiness,increasingtheirprofitabilityandthatofAlibaba.ProductsincludeMaxCompute,anofflinedatastorageandcomputingserviceusefulforcustomersinlow-tiercities,Blink,areal-timedatastorageandcomputingplatform,andOneData,adataintegrationandmanagementsystem.AlibabahasbeencalledonbytheChinesegovernmenttoleadtoleaditssmartcityobjective.With120,000peoplebysquaremile,thecityofShanghaidesperatelywantstomaximizeitspopulationpotentialwhilemaintainingpeakefficiency.AlibabahasusedartificialintelligencealgorithmstogeneratebusservicesrunningonoptimalrouteswhileallowinguserstofindtheirbestindividualroutesthroughtheAliPayapplication.IfAlibaba’sinitialattemptsprovesuccessful,theChinesegovernmentmaycontractthecompanytoleadtheobjectiveinhospitals,energyinfrastructure,andeducation.

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CompanyBreakdown

DigitalMedia&EntertainmentAlibabaseesdigitalmediaandentertainmentasanaturalextensionofthebusinessthatwillcaptureconsumptionoutsideoftheircorecommerceandcloudcomputingbusinesses.Thedataaggregatedviacorecommerceallowsthefirmtocreateanddistributerelevantcontenttousers.Originalcontentandlicensedshowsareseenasasuccessfulwaytopenetratebothlower-tiercitiesandnewmarketsthroughoutSoutheastAsia,potentiallyloweringmarketingcostsinthelongterm.TheinternalinfrastructureincludesYouku,thethirdlargestonlinevideoplatforminChinaintermsofmonthlyactiveusers,andDamai.cn,anentertainmentticketingplatformthatprovidesliveperformanceandshowtickets.QuestMobileandUCBrowserserveasthedistributionplatformsforAlibabadigitalmediaandentertainment.Therewasa23%year-over-yearrevenuegrowthfor2019FYasAlibabaislookingforwaystobattleformarketshare.Alibabainvestedin,coproduced,anddistributedeightofthetoptenbest-sellingmoviesinChinawhilefollowingits“small,true,big,andpositive”guidelines.

Youku:YoukuhasnotedthatitsusersareshowingastronginterestinclassicT.V.showsdatingback10-15yearsago.UsingdataavailabletothecompanythroughAlibaba’sdigitaleconomy,itpurchasedtherightstoFriends,andrelaunchedtheshowinHD.ItisalsoventuringintorealitytelevisionasitlaunchedStreetDanceofChina.

InnovationInitiativesAlibabahasmadeittheirprerogativetodevelopnewservicesandproductsthatmeettheneedsoftheconsumerbase,improveefficiencyinthedailylivesofcustomers,andstrengtheningsynergiesbetweenthebusinesseswithinthedigitaleconomy.Revenuefrominnovationinitiativessawayear-over-yearincreaseof42%in2019FY.ThisgrowthwasachievedafterthereclassificationofFreshippo,previouslyreportedunderthissegmentuntilitsrevenueoutgrewincubationstageparameters.

Amap.com:Amapisthelargestproviderofmobiledigitalapplicationnavigationandreal-timetrafficinformationinChinabymonthlyactiveusers.Itempowerscompanieswithinthedigitaleconomy,includingretailmarketplacesandAlipay.

Dingtalk:DingtalkisthelargestbusinessefficiencyapplicationinChinabymonthlyactiveuser.Itservesenterprisesandorganizationsofvarioustypesandsizeswithunifiednetworkcollaborationservicesandintelligentmobileworkplaces.

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BABA S&P 500

TradeWar

Who?UnitedStates&China When?January22nd,2018-Present Why?AmericanTradeDeficitHistorically,DonaldTrumphaslongbeenaproponentoftakingaggressivemeasurestodecreasethetradedeficitbetweentheUnitedStatesandChina.HecampaignedontheideaholdingtheChineseGovernmentaccountableforwhathelabeledashighlyquestionabletradepractices.TheinauguraltariffwasannouncedonJanuary22nd,2019,atariffonsolarpanelsandwashingmachines.Sincethentherehavebeenadditionaltariffsimposedbybothcountriesandothersannouncedforthefuture.

KeyDates:

• January22nd,2018–Tariffannouncedonsolarpanelsandwashingmachines.• March22nd,2018–DonaldTrumpaskstheUnitedStatesTradeRepresentatives(USTR)toinvestigate

applying$50-60millionintariffsonChineseGoods.• July6th,2018–Tariffson$34billionworthofChinesegoodsgoescameintoeffect.• September17th,2018 –TheUnitedStatesannounceda10%tariffon$200billionworthofChinese

goods,beginningonSeptember24th,2018andincreasingto25%bytheendoftheyear.• May5th,2019-DonaldTrumpannouncestheprevious10%tariffson$200billionofChinesegoodswill

beuppedto25%onMay10th.• June29th,2019–DonaldTrumpsaysheandXiJinpingagreedtoa“truce”inthetradewarafter

extensivetalks.• September27th,2019–ThecurrentadministrationisallegedlyconsideringdelistingChinese

companiesfromAmericanstockexchanges.

WhatdoesthismeanforAlibaba?TheUnitedStates-ChinatradewarhasputdownwardpressureonthestockpriceofAlibaba.ThetariffsannouncedbythecurrentUnitedStatesadministrationarenotthethreattoAlibaba.ThegeopoliticalfalloutduetothetradewarhassulliedinvestorsentimenttowardsChinesecompaniesandthathasbeenmostdamaging.TherearefearsthatthecurrentadministrationwilltakeaggressivemeasurestoinhibitthegrowthofChineseretailersintheUnitedStates,thelargestofwhichbeingAlibaba.Alibabasees88%ofitsrevenuesgenerateddomesticallyandthemajorityoftheother12%beingfromotherSoutheastAsiancountries.Intheworstcasescenario,Alibaba’sabilitytooperateintheUnitedStatesishindereddramatically,thecompanywillstillgrowitsalreadydominantmarketshareinAsia,theMiddleEast,andNorthernAfrica.Weexpectthetradewartocontinueinto2020,butnoactionstobetakenonpartoftheUnitedStatesgovernmenttohinderoperationsofAlibaba.Thus,Alibabaisundervaluedwithnorealthreattothehealthofthecompany.

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255

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654730 740

807881

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Number of Active CustomersYoY

57,36163,241

68,99376,121

82,461

2014 2015 2016 2017 2018

Chinese Wage Growth (CNY)

15 % CAGR

85.82%

6.56%6.39% 1.24%

2019FYCoreCommerce

CloudComputing

DigitalMediaandEntertainmentInnovationInitiatives

85.29%

8.24%5.99%

1.17%2020FY

CoreCommerce

CloudComputing

DigitalMediaandEntertainmentInnovationInitiatives

RevenueBreakdown

CoreCommerce

Alibaba’scorecommerceismainlydrivenbyusergrowth.Over70%ofnewcustomerscomefromlessdevelopedareasdomesticallylabeled‘Low-tiercities’withAlibabaachieving50%userpenetrationoftheapplicablepopulationintheseareasoutofanover800mtotalpopulation.Alibaba’suseracquisitionhasbeeneffectiveagainstitscompetitorsduetosynergiesfromitsecosystem,leveraginglocalservicesandAliPaytoacquirenewcustomersacrossitsvariousbusinesses.Ofcorecommerce,domesticretailaccountedfornearly77%ofrevenue.China’spercapitadisposableincomegrewnominallyup8.8%YoYforthefirsthalfof2019.

AhighernumberofactivecustomershascontributedtowardsincreasinggrossmerchandisevolumesacrossAlibaba’splatforms.Ontopofthat,theboomingofChina’smiddle-classreflectsinhigherrevenuespercustomeramidanupgradeofChina’sconsumerbase.Alibabaisextremelywellpositionedtoexpanditsmarketshareasweexpecte-commercesalestocontinuetosurgeinthefollowingyears.

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$96,931 $115,208

$547,529

$768,740 $853,375

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GMV (Billions of USD)

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Active Customers (millions)

RevenueBreakdown

Infiscalyear2015Alibabahad255millionactivecustomersacrossitsplatformstransactingover$96billiondollarsofgrossmerchandisevolume.

Thesefiguresjumpedto654millionactivecustomerstransactingover$800billionofGMVin2019FY.

Increasedlevelsofuserengagementarestronglytiedtohigherlevelsofmobileactiveusers.

GrossMerchandiseVolume

MobileMonthlyActiveUsers

Since2015Alibabaexpandeditsnumberofmobileactiveuserstremendously.Thecurrentmarketpenetrationof721millionmonthlyactiveusersaccountsformorethanhalfoftheChinesepopulation.ThisstandalonestatisticgivesAlibabaownershipofoneofthemostvaluableassetsintoday’sworldwhichisdata.Oncethecompanyenjoyshighsynergieswithinitsbusinesses,ithasleveragedonitsbusinessmodeltodirectuserstodifferentbusinessandconvertthemintocustomers.

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RevenueBreakdown

76.6%

3.1%

6.0%

2.5%4.6%

5.6% 1.6%

Core Commerce BreakdownChinaretail

ChinaWholesale

InternationalRetail

InternationalWholesale

Caianiao

LocalConsumerServices

Others

ChinaRetailsawa31%year-over-yeargrowthin2019FYonthebackofgrowingconsumerspendingfueledbywagegrowthandan8.8%year-over-yearincreaseindisposableincomereaching$2227amongChinesecitizens.Lower-tiermarketshada2018-2019FYaveragerevenueperuser(ARPU)fromnewcustomersexceeding$281annually.Basedontheaforementioneddisposableof$2227,newcustomersspendinexcessof10%oftheirdisposableincomeonAlibaba’sdomestice-commerceplatform

ChinaWholesalesawanincreaseof39%year-over-yearforthe2019FYdueto910,000memberspayinganannualsubscriptionfeetoreachcustomerswiththeoptionofadditionalservicessuchasdataanalytics,storefrontmanagementtools,andcustomermanagementservices.Furthergrowthwillbedrivenbyanincreaseinaveragerevenuefrompayingmembers.

InternationalRetailsawanincreaseof38%year-over-yearforthe2019FYprimarilyduetoincreasesinrevenuefromLazada,theconsolidationofTrendyol,andanincreaseinrevenuefromAliExpress.

InternationalWholesalerevenuesincreasedby23%year-over-yearin2019FY.Thegrowthfollowedanincreaseintheamountofusersandanincreaseintheaveragerevenueperuser.

CainiaoLogisticsServicessawanincreaseinrevenuesof106%year-over-yearduetotheeliminationofinter-companytransactions.Logisticsrevenueisdrivenbysupplychainmanagementsolutionsaswellason-demanddeliveryservicesfromEle.me.

LocalConsumerServicesgeneraterevenuethroughfeesfromtheprovisionofdeliveryservicesandotherservicesprovidedbyouron-demanddeliveryandlocalservicesplatformEle.me.Revenueswereconsolidatedin2019FY,growthrateswillberecognizedin2020FY.

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47.30%

15.40%

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8.00%

6.80%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00%

AlibabaCloud

Tencent

AWS

Baidu

ChinaTelecom

Cloud Services Market (China)

RevenueBreakdown

CloudComputingStandingasthemainproviderofcloudcomputingservicesinAsia,AlibabaClouddominatesthemarketintheregioncurrentlyholding47%ofmarketshareinChina.Alibabasawthenumberofpayingcustomerstoincreasefrom263,000in2014toover1,400,000in2018,whiletheaveragerevenueperpayingcustomerjumpedby237%duringtheperiod.

Revenuesfromcloudcomputingservicesareprimarilygeneratedfromenterprisecustomersbasedonthedurationandusageofservices.Alibabahasenjoyedbothlongerusageofservicesbyitspayingcustomersaswellashigherspendingonmultipleservicesincludingmorecomplexofferings,suchasnetworkvirtualizationanddatabaseservices.

§ Hanguang800

InSeptember2019,thecompanyrevealeditsproprietaryhigh-performanceARinferencechipHanguang800.Thechipspecializesintheaccelerationofmachinelearningtasks,thenewtechnologycancutdowncomputingtasksthatwouldtakeanhourdowntofiveminutesaccordingtoAlibaba.TheHanguang800willbeusedinAlibabaCloud,thiswillallowthecompanytofurtherincreasesalesofnewandbettercloudservicestocustomersofitsfastest-growingbusiness

Outlook

WiththeglobalcloudservicesmarketexpectedtogrowataCAGRof17.6%upuntil2020,AlibabaCloudstillhavemuchroomtoexpanditsbusinessbothinChinaandinternationally.DespitefiercecompetitionfromTencentandAmazon,theleadingcloudcomputingservicesproviderinAsiahasproventobetheprincipalchoiceofcustomersintheregion.Lookingforwardweseeanincreaseddemandforfaster,cheaperandaccessibledatastorageservices.

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$2,141

$3,119$3,588

$4,270

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$6,435

$7,208

$8,000

$-

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$1,797

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RevenueBreakdown

DigitalMediaandEntertainmentDigitalMediaandEntertainmentsawa15.04%year-over-yearincreaseinrevenuesforthe2019FY.Basedonourprojectionthrough2020FY,wepredictthatDigitalMediaandEntertainmentwillcontinuetoincreaseitsrevenuesyear-over-yearbutdecreaseasapercentageoftotalrevenuesduetotherapidgrowthofAlibabaCloudServices.Themaindriversforrevenuearecustomermanagementservicesfeesandmembershipsubscriptionfeesusuallygeneratedfrombusinessandadvertisingagencies.BothofwhicharedirectlycorrelatedtotheamountofactiveusersontheAlibabaplatform. Revenue ($ Millions)

InnovationInitiativesSinceinception,AlibabahastakenmarketsharebypresentingtheChineseconsumerwithnew,innovativeideasthathave“madeiteasiertodobusinesseverywhere”.Alibabaisdevelopingnewserviceofferingsandproductsthatmeettheneedsandimproveefficiencyinthedailylivesoftheircustomers.InnovationInitiativessawa32.63%year-over-yearincreaseinrevenue.Alibabaincubatesthesecompanies,suchasDingtalkandAmap.com,andshapestheminawaythatcreatesandmaintainssynergieswithinthedigitaleconomy.FreshippowasoriginallyanInnovationInitiative,butwasmovedtocorecommerceafteritsrevenuessurpassedInnovationInitiativeparameters. Revenue ($ Millions)

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5-Year Discounted Cash Flow 2020F 2021F 2022F 2023F 2024F 2025FEBIT 13,243 15,536 18,109 20,906 23,669 26,641Tax Rate 19.2% 19.2% 19.2% 19.2% 19.2% 19.2%EBIT(1-Tax) 10,705 12,558 14,638 16,898 19,132 21,534

(+) Depreciation & Amortization 5,914 6,385 6,852 7,447 8,230 9,084(+) Change in Net Working Capital 13,237 9,541 10,495 11,544 12,699 13,968(+) Stock Comp 5,793 6,438 7,140 8,398 9,921 11,157(-) CapEx (4,886) (5,501) (6,454) (6,170) (6,735) (5,753)

Unlevered FCF 30,764 29,421 32,671 38,117 43,247 49,992

Discount Period - Year 0.5 1.5 2.5 3.5 4.5 5.5PV of UFCF 29,213 25,192 27,975 26,538 27,150 28,299

Terminal Value CalculationTerminal Value of Ufcf: $410,634Sum of PV of Ufcf $164,365PV of Terminal Ufcf $394,660

Enterprise Value $559,026(-) Debt $20,011(+) Cash $28,308Equity Value $567,323Intrinsic Value $214.40

AssumpitonsTerminal Grow th Rate 3.75%Beta 1.23CAPM 8.32%Tax Assumption 19.17%WACC 10.90%EV Today 414,038$ Shares Outstanding 2,646

Valuation

IntrinsicValueCalculations

Undervaluation

TheUnitedStates-ChinatradewarhasincreasedgeopoliticaltensionbetweenbothcountriesandexerteddownwardpressureonAlibaba’sstockprice.InvestorsentimenttowardsChinesecompanieshasbecomenegative,preventingthestockpriceofAlibabatoriseinrelationtoitsimpressivefinancialperformancethroughthetradewarthusfar.Thishascreatedauniquebuyopportunity;thefundcouldseea29%returnfromourcalculatedintrinsicvalue.

RevenueBreakdown

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Catalysts

UserGrowthWhileAlibabaexpandsintothelower-tiercitiesinChinaandthroughouttherestofSoutheastAsiaitwillbefocusingonuseracquisition.StrongerthanexpectedmarketpenetrationpairedwiththeadoptionlocalbusinessesintothedigitaleconomywillboostrevenuegrowthandexposurefortherestofAlibaba’splatform.Alibabahasacquirede-commercecompaniesspanningSoutheastAsia,theMiddleEast,andNorthAfrica.ThequickerAlibabacangrowitsuserbaseintheseareasthefastitcanacquiremarketshare.BetweenIndia,Pakistan,Bangladesh,Turkey,andIndonesiaAlibabawillhavethepotentialtoreachover1.97billionpeople.Withcurrentmonthlyactiveusers(MAU)sittingat960million,afterthe33%stakeacquiredinAntFinancial,itisastrongpossibilitythatAlibabacouldobtainover1.5billionMAU.

ConsumerSpendingIncreasedChineseconsumerspendingincombinationwithrapidlydevelopingconsumerisminagrowingChinesemiddleclasspresentsgreatdomesticgrowthopportunityforAlibaba.Sincetheinitialpublicoffering(IPO)ofAlibaba,Chineseconsumerspendinghasaveragedan8.01%year-over-yearincrease.Theincreaseinconsumerspendingisdirectlycorrelatedtowagegrowthwhichhasseenanaverageyear-over-yeargrowthrateof9.50%sinceIPO.Chinesecitizens,especiallythemiddleclass,aremakingmoremoneyandarewillingtospendalargerpercentofitonretail.

CloudServicesAlibabaCloudServiceswillconsistentlybethefastestgrowingbusinesswithintheAlibabaplatform.Managementhasfocusedongrowthandlessonprofitability.Theyseecloudservicesasanavenuetoexploituntouchedrevenuestreamsnotavailabletoanyretailplatform.Fixed-AssetInvestmentcontinuestoriseasbusinessesarelookingtotakeadvantageofgrowthopportunities.Evenwithoutanemphasisonprofitability,themarginforAlibabaCloudComputingserviceswas-5%in2019FY,aprofitmarginincreaseof20%year-over-year.

Risks

ChineseMacroeconomicConditionsIfmacroeconomicmarkerssignaladowntrendintheChineseeconomythenegativesentimentwillspreadandconsumerspendingwillseeasharpdecline.BothmerchantsandconsumerswillminimizetheirspendingandthiswillhurtAlibabaonbothfrontsastheydobusinesswithotherenterprisesandindividualconsumers.

WeakMarketPenetrationIfAlibabafailsinitsattempttopenetratenewmarketsduringitsexpansionthroughoutSoutheastAsiaitwillseeslowerthananticipatedgrowth.Thecostofclientacquisitionwillincreaseonthebackoffailedexpansionattempts,hurtingmargins.

GovernmentRegulationAnunfavorableturningovernmentregulationscouldresultinasignificantonAlibaba’soperations.Over80%ofAlibaba’sdomesticretailistransactedthroughAlipay.IncreasedregulationcouldnegativelyimpactAlibaba’smobileplans.

CompetitorsThemaincompetitorsofAlibabaareJd.com,Baidu,andTencent.Themostsignificantthreattothe continued success of Alibaba’s e-commerce and local services businesses is JD.com. They specializes inspecificproductsandmarketspotentiallyresultingindecreasedgrowthorincreasedmarginpressures.

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DanielZhang,ChiefExecutiveOfficerDanielZhangjoinedAlibabainAugust2007asChiefFinancialOfficerofTaobaoMarketplace.PriortojoiningAlibaba,hereceivedabachelor’sdegreeinfinancefromShanghaiUniversityofFinanceandEconomics.HeiscurrentlyamemberofAntFinancial’sinvestmentcommitteeandthechairmanofSunArt.

MaggieWu,ChiefFinancialOfficerMaggieWujoinedAlibabainJuly2007astheChiefFinancialOfficerofAlibaba.com.AfterthreeyearsinthisroleshewasvotedbestCFOinFinanceAsia’sannualpollforbestmanagedcompanies.In2018,shewasnamedontheForbes100MostPowerfulWomenList.ShehasherACCAdesignationandabachelor’sdegreeinaccountingfromCapitalUniversityofEconomicsandBusiness.

JeffZhang,ChiefTechnologyOfficerJeffZhanghasservedastheChiefTechnologyOfficersinceApril2016andpresidentofAlibabaCloudIntelligencesinceNovember2018.HejoinedAlibabainJuly2004andhasheldmultiplemanagementpositions,leadingTaobaoMarketplaces’stechnologyteams.ZhangstudiedcomputerscienceatZhejiangUniversity.

JessieZhang,ChiefRiskOfficer

JessieZhanghasbeentheChiefRiskOfficersinceDecember2017andisresponsiblefordataandinformationsecurityacrossallAlibabaplatforms.ShetookoverasChiefPlatformGovernanceOfficerinDecember2015.SheservedasthedeputychieffinancialofficerfromNovember2013toJune2016.Zhangreceivedherbachelor’sdegreeinaccountingfromNortheasternUniversityinChina.

ChrisTung,ChiefMarketingOfficerChrisTungjoinedAlibabaasChiefMarketingOfficerinJanuaryj2016.HewasthepresidentofAlimamaforayear,betweenNovember2017andNovember2018.HeiscurrentlyadirectorofRuhnHoldingLimitedandreceivedabachelor’sdegreeinelectricalengineeringfromNationalTaiwanUniversityandamaster’sdegreeinindustrialengineeringfromtheUniversityofMichigan,AnnArbor.

Management

14

DuPontAnalysis 2015FY 2016FY 2017FY 2018FY 2019FY 2020FNetIncome 3,923 11,056 5,989 9,791 11,955 13,176Revenues 12,293 15,686 22,994 39,898 56,152 71,228NetProfitMargin 31.9% 70.5% 26.0% 24.5% 21.3% 18.5%AveragetotalAssets 48,864 65,076 93,978 129,064 157,310Turnover 0.32 0.35 0.42 0.44 0.45AverageEquity 32,047 42,677 58,116 80,130 96,770EquityMultiplier 1.62 1.46 1.58 1.64 1.59 1.60ROE 33.05% 14.52% 17.12% 14.69% 13.38%KeyRatios 2015FY 2016FY 2017FY 2018FY 2019FY 2020FProfitability%GrossMargin` 68.72% 66.03% 62.42% 57.23% 45.09% 47.30%SG&AtoSales 38.36% 37.26% 32.06% 29.53% 29.94% 28.84%OperatingMargin 30.36% 28.77% 30.36% 27.70% 15.15% 18.46%ROA 9.52% 19.56% 8.13% 8.56% 8.31% 7.71%Valuation 2015FY 2016FY 2017FY 2018FY 2019FY 2020FEnterpriseValue 189,325 186,575 263,808 444,998 462,424 414,038EBIT 3,732 4,513 6,981 11,050 8,506 13,152EBITDA 4,444 5,552 9,058 14,560 14,030 19,054EV/EBIT 50.73 41.34 37.79 40.27 54.36 31.48EV/EBITDA 42.60 33.61 29.12 30.56 32.96 21.73EV/SALES 15.40 11.89 11.47 11.15 8.24 5.81EV/GMV 1.95 1.62 0.48 0.58 0.54 0.41

P/E 50.81 17.52 42.69 44.73 36.06 29.37Price(yearend) 84.85$ 79.00$ 108.85$ 178.91$ 182.45$ 166.00$EPS 1.67$ 4.51$ 2.55$ 4.00$ 5.06$ 5.65$

Liquidity 2015FY 2016FY 2017FY 2018FY 2019FY 2020FCurrent Ratio 3.56 2.58 1.95 1.89 1.30 1.45Cash Ratio 2.73 2.05 1.53 1.47 0.91 1.11Cash & ST Inv/Current Assets 3.08 2.14 1.56 1.51 0.93 1.11CFO/Current Liabilities 1.04 1.09 0.86 0.92 0.73 0.76

Leverage 2015FY 2016FY 2017FY 2018FY 2019FY 2020FLT Debt/Total Equity 32.15% 21.43% 23.93% 27.39% 18.38% 12.95%LT Debt/Total Capital 24.10% 17.40% 18.61% 21.27% 15.05% 11.14%LT Debt/Total Assets 19.81% 14.67% 15.16% 16.67% 11.59% 7.80%Debt/Total Assets 20.59% 15.85% 18.10% 17.51% 13.92% 9.76%Debt/Total Equity 33.41% 23.15% 28.57% 28.77% 22.07% 16.20%Debt/Total Capital 25.04% 18.80% 22.22% 22.34% 18.08% 13.94%

Appendix

15

CONSOLIDATED INCOME STATEM

ENT2015FY

2016FY2017FY

2018FY2019FY

2020E2021F

2022F2023F

2024F2025F

Revenue$12,293

$15,686$22,994

$39,898$56,152

$71,721$89,486

$109,932$133,824

$161,041$191,216

Growth (%

)28%

47%74%

41%28%

25%23%

22%20%

19%

Cost of Goods Sold(3,845)

(5,328)(8,642)

(17,065)(30,833)

(37,794)(47,602)

(59,028)(72,526)

(88,082)(105,542)

Gross Profit8,448

10,35814,352

22,83325,319

33,92841,884

50,90461,298

72,95985,674

Gross M

argin (%)

68.7%66.0%

62.4%57.2%

45.1%47.3%

46.8%46.3%

45.8%45.3%

44.8%

Operating Expenses:

Product development expenses(1,720)

(2,138)(2,479)

(3,628)(5,578)

(6,717)(8,604)

(10,845)(13,537)

(16,692)(20,298)

Sales and marketing expenses(1,373)

(1,753)(2,370)

(4,352)(5,928)

(7,715)(9,805)

(12,265)(15,198)

(18,612)(22,481)

General and administrative expenses(1,258)

(1,428)(1,778)

(2,589)(3,708)

(4,333)(5,764)

(7,293)(8,845)

(10,643)(12,245)

Amortization of intangible assets(337)

(455)(744)

(1,135)(1,599)

(1,793)(2,058)

(2,309)(2,676)

(3,221)(3,824)

Impairment of goodwill and intangible assets

(28)(71)

(79)(126)

(116)(82)

(135)(123)

(184)

Operating income

$3,732$4,513

$6,981$11,050

$8,506$13,243

$15,536$18,109

$20,906$23,669

$26,641

Operating M

agin (%)

30%29%

30%28%

15%18%

17%16%

16%15%

14%

Interest and investment income, net1,525

8,1041,244

4,8626,572

3,8004,175

4,5885,043

5,5436,094

Interest expense(443)

(301)(388)

(568)(773)

(651)(537)

(451)(339)

(202)(160)

Other income, net401

319884

66332

--

--

--

Income before incom

e tax and share of results of equity investees$5,215

$12,635$8,721

$16,007$14,337

$16,392$19,174

$22,247$25,609

$29,010$32,575

Income tax expenses(1,035)

(1,310)(2,002)

(2,901)(2,466)

(3,142)(3,675)

(4,264)(4,909)

(5,561)(6,244)

Share of results of equity investees(257)

(269)(730)

(3,315)84

--

--

--

Net income

$3,923$11,056

$5,989$9,791

$11,955$13,250

$15,498$17,982

$20,700$23,449

$26,331

Net income attributable to noncontrolling interests(9)

27356

4271,140

1,4341,790

2,1992,676

3,2213,824

Net income attributable to Alibaba Group Holding Limited3,914

11,0836,345

10,21813,095

14,68417,288

20,18123,377

26,67030,155

Accretion of Convertible Preference Shares(2)

--

(17)(42)

--

--

--

Dividends accrued on Convertible Preference Shares(16)

--

--

--

--

--

Net income attributable to ordinary shareholders

$3,896$11,083

$6,345$10,201

$13,053$14,684

$17,288$20,181

$23,377$26,670

$30,155

Profit Margin (%

)31.7%

70.7%27.6%

25.6%23.2%

20.5%19.3%

18.4%17.5%

16.6%15.8%

Earnings per share/ADS attributable to ordinary shareholders

Basic | (per share)$1.67

$4.51$2.55

$4.00$5.06

$5.68$6.74

$7.80$8.95

$10.12$11.34

Diluted | (per share)$1.56

$4.33$2.47

$3.91$4.97

$5.60$6.64

$7.68$8.82

$9.97$11.18

Weighted average num

ber of shares

Basic2,337

2,4582,493

2,5532,580

2,5842,566

2,5892,612

2,6352,658

Diluted2,500

2,5622,573

2,6102,623

2,6232,605

2,6282,651

2,6742,698

EBITDA$4,444

$5,552$9,058

$14,560$14,030

$19,157$21,921

$24,962$28,353

$31,899$35,725

16

CONSOLIDATED BALANCE SHEETS $ in Millions2015FY

2016FY2017FY

2018FY2019FY

2020F2021F

2022F2023F

2024F2025F

Current assets:

Cash and cash equivalents$17,453

$16,566$20,882

$31,775$28,308

$49,483$65,419

$88,817$113,921

$146,107$186,489

Short-term investments2,282

729437

970486

228217

206195

186176

Restricted cash and escrow receivables371

209386

5451,269

1,3851,485

1,9892,414

3,0843,443

Investment securities590

648589

7681,479

1,3511,486

1,6341,798

1,9782,175

Prepayments, receivables and other assets2,094

2,6404,222

6,8918,730

12,19915,220

18,69822,762

27,39132,524

Total current assets22,790

20,79226,516

40,94940,272

64,64683,827

111,344141,091

178,745224,808

Investment securities2,357

4,5584,569

6,08923,407

27,03429,737

32,71135,982

39,58043,538

Prepayments, receivables and other assets659

9321,169

2,6944,175

4,3865,472

6,7228,183

9,84711,692

Investments in equity investees5,465

14,18417,487

22,27112,584

12,46912,470

12,47112,472

12,47312,474

Property and equipment, net1,474

2,1142,936

10,60013,713

14,47715,651

17,56218,961

20,68621,179

Land use rights501

446682

1,4950

--

--

--

Intangibles & Goodwill7,825

13,49520,271

30,22849,650

48,36848,252

48,16948,035

47,91247,728

Total assets$41,206

$56,521$73,630

$114,326$143,801

$171,379$195,409

$228,979$264,723

$309,244$361,419

Current liabilities:Short-Term debt

321667

2,164961

3,3473,346

1,6254,870

2,33683

831Income tax payable

441433

8902,181

2,6352,923

3,6474,480

5,4546,563

7,793Escrow money payable

337487

1,2291,165

1,4541,786

2,1752,617

3,107Accrued expenses, accounts payable and other liabilities

3,1994,240

6,85512,940

17,54028,331

35,68444,249

54,36866,029

79,118Merchant deposits

1,1621,134

1,1901,527

1,6042,053

2,3762,748

3,1703,652

4,203Deferred revenue and customer advances

1,2771,597

2,1873,555

4,5896,765

8,44110,369

12,62315,190

18,037Total current liabilities

6,4008,071

13,62321,651

30,94444,584

53,22768,504

80,12594,134

113,089Deferred revenue

7265

93158

219314

392482

586706

838Deferred tax liabilities

7251,004

1,4753,079

3,3554,648

5,8007,125

8,67310,437

12,393Long-term debt

8,1638,292

11,16319,055

16,66413,318

11,6936,823

4,4874,404

3,573Other liabilities

347335

188327

9224,393

5,7116,282

6,9107,601

8,361Total liabilities

$15,707$17,767

$26,542$44,270

$52,104$67,257

$76,822$89,214

$100,781$117,281

$138,253Commitments and contingencies

Mezzanine equity

$106$54

$434$478

$1,016$1,033

$1,033$1,033

$1,033$1,033

$1,033Shareholders' equity:

Additional paid-in capital less Treasury Shares18,897

20,50423,501

29,41934,537

$33,633$32,599

$35,795$39,272

$43,843$48,716

Reserves252

365502

640740

748748

748748

748748

Subscription receivables(66)

(27)(9)

(26)(7)

--

--

--

Accumulated other comprehensive income (loss)372

597738

810(348)

--

--

--

Retained earnings4,007

12,21315,772

27,47738,426

51,67667,174

85,156105,856

129,305155,636

Total shareholders' equity$23,462

$33,652$40,504

$58,320$73,348

$86,056$100,521

$121,699$145,877

$173,897$205,100

Noncontrolling interests1,931

5,0486,150

11,25817,333

17,03317,033

17,03317,033

17,03317,033

Total equity25,393

38,70046,654

69,57890,681

103,089117,554

138,732162,910

190,930222,133

Total liabilities, mezzanine equity and equity$41,206

$56,521$73,630

$114,326$143,801

$171,379$195,409

$228,979$264,723

$309,244$361,419

17

\

JonathanEbberhartJonathanEbberhartispursuingadegreeinFinance,concentratinginAssetManagement,accompaniedbyminorsinbothPoliticalScienceandEconomics.Hegrewupplayingfootballandappliedthecharacteristicsthatunderpinnedathleticsuccesstohisacademicpursuits.PriortojoiningtheAppliedSecuritiesAnalysisprogram,JonathanspentasummerasanOperationsAssociateInternwithAnchorWealthManagementandthislastsummerasaWealthManagementSummerAnalystwiththeJ.P.MorganprivateBank.Heseeshimselfenjoyingasuccessfulcareerincorporatefinancebeforestartinghisownprivateequityfirm.Jonathanispassionateaboutspreadingfinancialliteracytoridcommunitiesofcyclicalpoverty.AfterhisgraduationinMay2020,heplanstopursuehisCFAdesignation.

CristianoFernandesFilhoCristianoFernandesFilhoisafinancemajorwithaneconomicsminorcurrentlypursuinghisCFAdesignation.OriginallyfromSãoPaulo,Brazil,FernandesisthepresidentoftheBrazilianStudentAssociationatUSFandafirst-generationcollegestudentwhoholdsaUSFGPAof3.97.Hepreviouslyservedasafinanceandeconomicstutor,helpingstudentstosucceedinfivedifferentcoursesofferedatUSF.AfterspendingasummerinaFinancialPlanning&AnalysisinternshipwithCiti,hejoinedtheAppliedSecuritiesAnalysisprogramtogainexperiencewithEquities.Aftercollege,CristianoplanstopursueacareerinInvestmentBanking.

TimothyDavisTimothyDavisisafirst-generationAmericanbornandraisedinTampaBay.Exposedatayoungagetomarketmovementsthroughhisfather’srealestateinvestingafterthe2008recession,hehasdevelopedapassionforstudyingfinancialmarketsandinvestmentsandisanavidspeculator.Timothyispursuingafinancemajorandhasabackgroundinappliedstatistics,upper-levelmathematics,andinformationtechnology.HecurrentlyworksatMorganStanleyasaWealthManagementInternanalyzingclientportfolios,performingmarketresearch,andassistinginthedevelopmentofportfoliomanagementmodels.InjoiningtheAppliedSecuritiesAnalysisProgram,heplanstofurtherchallengeanddevelophisresearchandfundamentalanalyticalskills.TimothyaspirestoenterthefieldofprivateequityandiscurrentlypursuinghisCFAdesignation.

AnalystTeam