Will Alibaba Overtake GOOGLE?
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Transcript of Will Alibaba Overtake GOOGLE?
WILL ALIBABA OVERTAKE
GOOGLE?
Table of Contents
• Executive Summary
• Industry Overview
• Company Considerations
• Trade Idea
• Appendix
Executive Summary
In this presentation, we will address the following questions: • Where does Alibaba generate its profits from? • What are the different stream of revenue?
• How does Alibaba’s potential market differ from Google? • What is Alibaba’s current growth strategy?
• Is there a higher emphasis on organic or inorganic growth? • What are the further industries Alibaba will venture into?
• How essential is Alibaba to the Chinese retail market?
INDUSTRY OVERVIEW
International e-Commerce Industry Overview • Global B2C sales are rapidly increasing with
a CAGR of 12%
• Alibaba’s GMV was ahead of its closest competitor by 114%
• Alipay transacted 73% of Chinese third party payments in FY13
Comparison of leading third party payment services in FY13
Leading global e-Commerce players ranked by GMV in FY13
1058 1233
1471 1700
1922 2145
2356
2012A 2013A 2014E 2015E 2016E 2017E 2018E
248
116 88
21 10 10
Alibaba Amazon eBay JD.com Staples Walmart
B2C e-Commerce sales worldwide from FY12-FY18
800
143 200
519
180
8
Alipay PayPal TenPay
No. of registered accounts (mn)
Total payment volume (USD, bn)
Chinese e-Commerce Market Overview
• Alibaba currently holds more than 80% of the Chinese gross merchandise volume (GMV) market share
• Chinese online retail sales market is growing at CAGR of 45%
• Percentage of business-to-customer online retail sales is rapidly growing
Chinese online retail sales (FY07-FY18)
Chinese e-Commerce market share distribution (FY13)
56 128 263 461 785 1187 1892
2760 3780
4772 5634
6493
2007A 2018E
RMB, bn
Alibaba
JD.com
Others
China’s online B2C vs. C2C sales (FY08-FY18)
0
50
100
2008A 2018E C2C B2C
Competitive Landscape: Google vs Alibaba Google and Alibaba are leaders in their home geographies, yet they have different specializations:
Baidu Amazon Google Average Alibaba
EV/Sales 2.8x 1.8x 5.8x 3.5x 13.5x
EV/EBITDA 6.5x 33.4x 19.4x 14.8x 36.0x
P/E 40.3x n/a 26.4x 33.3x 50.3x
Alibaba
Specialization: internet and mobile commerce, data, logistics, finance Key geography: China Established: 1999 IPO: 2014
Google Specialization: online advertising, search engine, cloud software Key geography: North America, EMEA Established: 1998 IPO: 2004
COMPANY CONSIDERATIONS
Business Model
Alibaba Group
Platform
Logistics
Data
Finance
Platform Taobao – C2C
Tmall – B2C Juhuasuan – intl. C2C
1688 – B2B Aliexpress – intl. B2B/B2C
Alibaba – intl. B2B
Logistics Cainao – supply chain/warehousing
Data Aliyun – cloud computing Alimama – marketing
Finance Alipay – third party payments Alibaba Financial Services – SME loans
Key Company Considerations
• Unique market position – largest Chinese e-commerce player – cross-divisional growth opportunities
– in 10 years, half of China’s population will be shopping on Alibaba’s platforms
• Impact of mobile monetisation – accelerating accessibility of smartphones in Chinese market
– Alipay currently holds 49% of China’s third-party online payment market share
– enhancement of mobile products through acquisitions, alliances and investment
– targeted mobile advertising and targeted promotional growth
Key Growth Considerations
• Domestic Chinese market – potential for further penetration of lower-tier Chinese cities and rural areas – broadening demographics, especially high growth in the 30+ age bracket
– mobile commerce will account for nearly one-third of total GMV in FY15
• In International markets – growing cross border e-commerce e.g. Alibaba.com for international C2C
sales – launch of ePass payment service which allows US retailers to reach Chinese
online shoppers through Alibaba B2C and C2C platforms
FY13 Operating Trends
Demographics Chinese population: 1.35bn
Chinese internet users: 618mn
Chinese internet shoppers: 302mn
Alibaba annual active buyers: 231 mn
Logistics Packages delivered by UPS globally:
4.3bn
Packages delivered by Alibaba:
5.0bn
133 145 160 172 185 202
231
FY12Q2 FY12Q3 FY12Q4 FY13Q1 FY13Q2 FY13Q3 FY13Q4
Active Buyers, mn
4.6% 5.6% 7.4% 10.7% 12.0% 14.7%
19.7%
FY12Q2 FY12Q3 FY12Q4 FY13Q1 FY13Q2 FY13Q3 FY13Q4
Mobile GMV as % of GMV, RMB bn
FY13 Operational Trends
Marketplace 11.3bn annual orders
23mn annual active buyers
Average of 49 annual orders per user
Alibaba total GMV: $248 bn
Scale and Size 190+ buyer geographies
3.6mn transaction/min processing
capability
$519bn total Alipay payment volume
Mobile Chinese mobile internet users: 500m
$37bn mobile GMV
Alibaba represents 76.2% of total
mobile retail GMV in China
Market Potential Chinese retail consumption: 37% GDP
US retail consumption: 67% GDP
Chinese online shopping expected to
grow at CAGR of 27% from FY13-16
Financial Forecasts EBIT & Margin (FY14-FY18)
Profit & Margin (FY14-FY18) Sales & Growth (FY14-FY18)
54 79
219
137
171
55% 48%
38%
25% 25%
0%
10%
20%
30%
40%
50%
60%
0
50
100
150
200
250
2014E 2015E 2016E 2017E 2018E
Sales Growth (%)
19
32
49
68
94
35% 40%
45% 50%
55%
0%
10%
20%
30%
40%
50%
60%
0
20
40
60
80
100
2014E 2015E 2016E 2017E 2018E
EBIT Margin (%) • Sales are forecasted to grow by 26% y-o-y
between FY14 and FY18
• Access to new markets within China and inorganic growth will see EBIT margin expansion to 55% in FY18
• This will translate into higher profit margins as capital structure will remain constant
16
27
42
59
81
29% 34%
38% 43%
47%
0%
10%
20%
30%
40%
50%
0
10
20
30
40
50
60
70
80
90
2014E 2015E 2016E 2017E 2018E
Key Financial Metrics - Liquidity
Payables Days Receivables Days
71
86 77 73 69 66
55
2012A 2013A 2014E 2015E 2016E 2017E 2018E
• The company overall has been improving liquidity metrics over the forecast period
• Payables days increase and eventually stabilize from FY14 onwards
• Receivables days are managed and declining
259
337 341 338 334 330 335
2012A 2013A 2014E 2015E 2016E 2017E 2018E
Inorganic Growth History • Since January 2013, investment and acquisitions in 12 key businesses who share a total
worth of more than $34 billion USD
• Key sectors: mobile, O2O services, digital media and logistics services
• Alibaba’s acquisition and investment strategy is centered around user base expansion through the integration of complementary products and technology
• More than $2.5 billion USD in 30 further companies
Technology • development of user
base through mapping technology
• targeted marketing opportunities
• healthcare sector ventures e.g. “Future Hospital” initiative
Media and
Entertainment
• Product expansion • Enhance digital
entertainment strategy with video communication, games, music, etc.
• Marketing access to millions of football fans
Logistics
• Increased delivery efficiency
• Creation of logistics hubs
• potential to support 100mn packages/day
• 24 hour delivery • Leverage experience
in tier 3 and 4 cities
Mobile
• enhance mobile commerce
• access vast user bases
• behavioural data integration
• expansion to overseas markets
Alibaba F-1 Statement, May 2014
VALUATION
Valuation Commentary
• Key financial assumptions: – WACC: 11.5% – Terminal growth rate: 3%
– Tax rate: 15%
• Chinese policy benefits sustained growth
• Revenue growth projected at a CAGR of 26%
• Low operational costs due to lack of inventories
• Risks: – limited structural ability to influence corporate matters
– conflict of interest arising with foreign shareholders
– internal problems e.g. potential counterfeit goods sold on marketplaces
– dilution of quality with too many new verticals e.g. healthcare
Financial Year (Dec. Year end) 2013 2014 2015 2016 2017 2018 Terminal Period
Total Turnover 35 54 79 109 137 171
growth (%) 55.0% 48.0% 38.0% 25.0% 25.0%
EBIT 11 19 32 49 68 94
margin (%) 31.1% 35.0% 40.0% 45.0% 50.0% 55.0%
Depreciation & Amortisation 0.8 1.3 2.8 3.8 5.7 7.8
Tax @ 15.0% (1.6) (2.8) (4.8) (7.4) (10.2) (14.1)
Capital Expenditure 2.5 4.5 6.7 9.3 11.6 14.5
Capex/Sales (%) -7.3% -8.5% -8.5% -8.5% -8.5% -8.5%
Change in Working Capital 0.0 (3.5) 3.1 4.1 4.4 9.3
Working Capital / Sales (%) 0.0% 6.5% -3.9% -3.7% -3.2% -5.4%
Free Cash Flow 7 9 26 40 57 82 82
Discount Factor 0.90 0.80 0.72 0.65 0.58 0.58
Terminal Value 999
Present Value 8.3 21.0 29.2 36.6 47.8 580
Enterprise Value (RMB, bn) 722
Net Debt as at (Dec 2013) -4.776
Market Capitalisation (RMB, bn) 727
No. Shares (bn) 2
Share Price (RMB) 304.4
Discounted Cash Flow Analysis
Valuation Summary
198
304
182
304
203
309
187
309
150 200 250 300 350
EV/Sales - Trading
EV/EBITDA - Trading
P/E - Trading
DCF
Share price, RMB
Curren
t share price: 677 RMB
APPENDIX
Inorganic Growth History
Company Date Description Potential Strategy
UCWeb June 2014 Mobile web browser developer
• Enhance mobile commerce • Access UCWeb’s vast user base and offer
additional mobile solutions
Weibo April 2014 Social media platform • Potential for social commerce model development
• Behavioral data integration • Integration benefits from user data base
TangoMe April 2014 Mobile messaging service based in the US
• Improve mobile messaging technology • Expand to overseas market
Mobile
Alibaba F-1 Statement, May 2014
Inorganic Growth History Technology
Intime Retail
July 2014 China’s leading department store operators
• Potential for an offline-to-online multi channel retail model
Retail
Company Date Description Strategy
Autonavi July 2014 Digital map content, navigation and location-
based solutions
• Development of Alibaba’s m-commerce user base through mapping technology
• Targeted marketing opportunity
CITIC 21CN April 2014 Product identification, authentication and tracking
system developer
• Create opportunities in healthcare sector • “Future Hospital” initiative e.g. app that allows
verification of drug authenticity through Alibaba cloud computing and big data technology and CITIC 21CN drug data
Alibaba F-1 Statement, May 2014
Inorganic Growth History
Company Date Description Strategy
ChinaVision June 2014 Film and television program producer
• Product expansion into digital media entertainment sector
Wasu Media April 2014
Digital media broadcasting and
distribution
• Enhance digital entertainment strategy with video communication, games music, etc.
Youku Tudou May 2014 Chinese online video company (500mn unique
visitors monthly)
• Advance Alibaba’s digital media vision to be available anywhere at anytime
• Improve targeted marketing
Evergrande FC
July 2014 Popular Chinese football team, first ever winner of
Asian Football Confederation
Champions League Cup
• Marketing access to millions of football fans
Media & Entertainment
Alibaba F-1 Statement, May 2014
Inorganic Growth History Logistics
Company Date Description Strategy
Zeijing Cainao
May 2013 Nationwide operator of logistics infrastructure
and information systems
• Enhance user experience through efficient delivery service
• Create key logistics hubs, distribution centres, warehouses with potential to support processing of over 100mn packages per day and 24 hour delivery anywhere across China
Haier Electronics
March 2014 Electrical appliance research, development,
manufacturing and sales firm
• Logistic JV specializing in delivery, installation and servicing of large format goods
• Developing higher quality after-sale service
• Leverage Haier’s industry experience and expertise in China’s tier 3 and 4 cities
Alibaba F-1 Statement, May 2014
Income Statement Alibaba Income Statement 2012A 2013A 2014E 2015E 2016E 2017E 2018E
Net Sales 20.025 34.517 53.5 79.2 109.3 136.6 170.7
COGS 6.554 9.719 16.1 23.8 32.8 41.0 51.2
SG&A 8.456 14.047 18.7 23.8 27.3 27.3 25.6
EBIT 5.0 10.8 18.7 31.7 49.2 68.3 93.9
Depreciation & Amortization 0.715 0.805 1.3 2.8 3.8 5.7 7.8
0.0 0.0 0.0 0.0 0.0
EBITDA 20.1 34.5 53.0 74.0 101.7
Other income 0.3 0.9 0.0 0.0 0.0 0.0 0.0
Interest Income 0.258 0.039 0.3 0.4 0.7 1.1 1.8
Interest Expense 0.068 1.572 0.5 0.4 0.4 0.4 0.4
Profit before taxes 5.5 10.1 18.5 31.6 49.4 69.0 95.3
Taxes 0.842 1.463 2.8 4.7 7.4 10.3 14.3
Profit after tax 4.690 8.649 15.7 26.9 42.0 58.6 81.0
Net income 4.7 8.6 15.7 26.9 42.0 58.6 81.0
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Shareholder information
Diluted weighted average shares outstanding 2.5 2.4 2.4 2.4 2.4 2.4 2.4
Diluted earnings per share $1.86 $3.62 $6.55 $11.20 $17.50 $24.43 $33.74
Dividends per share $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Dividends 0.0 0.0 0.0 0.0 0.0
Balance Sheet Alibaba Balance Sheet 2012A 2013A 2014E 2015E 2016E 2017E 2018E Assets Current assets
Cash and cash equivalents 21.744 32.686 40.8 67.9 110.1 168.3 255.0 Accounts receivable 3.893 8.113 11.2 15.8 20.8 24.6 25.6 Prepaid expenses 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other current assets 2.3 2.4 4.3 6.3 8.7 10.9 13.7
Total current assets 27.9 43.2 56.3 90.1 139.6 203.8 294.3
Non-current assets Net PP&E 2.463 3.808 7.0 10.9 16.4 22.3 29.0 Goodwill 11.436 11.294 11.3 11.3 11.3 11.3 11.3 Other intangibles 0.4 0.3 0.3 0.3 0.3 0.3 0.3 Other assets 5.1 5.2 10.7 15.8 21.9 27.3 34.1
Total assets 47.210 63.8 85.7 128.5 189.5 265.0 369.0
Liabilities Current liabilities
Short term debt 1.3 5.4 0.0 0.0 0.0 0.0 0.0 Accounts payable and accruals 4.7 9.0 15.0 22.0 30.0 37.0 47.0 Other payables 1.5 4.7 0.2 0.4 0.6 0.8 1.1 Deferred Revenues 4.4 4.9 16.1 23.8 32.8 41.0 51.2 Total current liabilities 11.751 23.995 31.3 46.1 63.4 78.8 99.4
Non-current liabilities Total long-term debt 0.0 22.5 22.5 22.5 22.5 22.5 22.5 Other long-term liabilities 1.0 6.3 8.0 11.9 16.4 20.5 25.6
Total liabilities 12.8 52.7 61.8 80.5 102.2 121.8 147.4
Equity Common stock 31.5 11.0 11.0 11.0 11.0 11.0 11.0 Retained earnings 0.0 0.0 15.8 42.8 85.0 143.8 225.0 Treasury stock 2.9 0.0 (2.9) (5.8) (8.7) (11.6) (14.5) Total equity 34.413 11.0 23.9 48.0 87.3 143.2 221.6 Total Liab.& Equity 47.210 63.8 85.7 128.5 189.5 265.0 369.0
Cashflow Statement Alibaba Cash Flow Statement 2013A 2014E 2015E 2016E 2017E 2018E
Net Income 15.7 26.9 42.0 58.6 81.0
Depreciation 1.3 2.8 3.8 5.7 7.8
Amortisation 0.0 0.0 0.0 0.0 0.0
Change in OWC (3.5) 3.1 4.1 4.4 9.3
Change in other assets (5.5) (5.1) (6.0) (5.5) (6.8)
Change in other liabilities 1.7 3.9 4.5 4.1 5.1
Cash from Operating Activities 9.8 31.5 48.4 67.4 96.3
Capex 4.5 6.7 9.3 11.6 14.5
Cash from Investing Activities -4.5 -6.7 -9.3 -11.6 -14.5
Change in Common Stock 0.0 0.0 0.0 0.0 0.0
Change in Treasury Stock (2.9) (2.9) (2.9) (2.9) (2.9)
Dividends 0.0 0.0 0.0 0.0 0.0
Long Term Debt Repayment 0.0 0.0 0.0 0.0 0.0
Cash from Financing Activities (2.9) (2.9) (2.9) (2.9) (2.9)
Net Cash Flow 2.4 21.8 36.2 52.9 78.9
Beginning Cash 27.2 29.6 51.5 87.7 140.6
Ending Cash 27.2 29.6 51.5 87.7 140.6 219.5
Financial Assumptions Alibaba Financial Assumptions 2013A 2014E 2015E 2016E 2017E 2018E Income statement
Sales growth % 72.4% 55.0% 48.0% 38.0% 25.0% 25.0% COGS as % of sales 28.2% 30.0% 30.0% 30.0% 30.0% 30.0% Annual depr. as % of previous PPE 32.7% 35.0% 40.0% 35.0% 35.0% 35.0% SG&A as % of sales 40.7% 35.0% 30.0% 25.0% 20.0% 15.0% Amortization of other intangibles amount 0.0 0.0 0.0 0.0 0.0 0.0 Non-recurring items amount 0.9 0.0 0.0 0.0 0.0 0.0 Effective tax rate 15.0% 15.0% 15.0% 15.0% 15.0%
Shareholder info Diluted weighted average shares outstanding (m) 2.389 2.4 2.4 2.4 2.4 2.4 Dividend per share growth rate 0.0% 0.0% 0.0% 0.0% 0.0%
Balance sheet: current assets Accounts receivable as % of sales 23.5% 21.0% 20.0% 19.0% 18.0% 15.0% Inventories % of COGS 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Other current assets % of sales 6.8% 8.0% 8.0% 8.0% 8.0% 8.0%
Balance sheet: non-current assets Capital expenditures % of sales 7.3% 8.5% 8.5% 8.5% 8.5% 8.5% Other assets % of sales 15.0% 20.0% 20.0% 20.0% 20.0% 20.0%
Balance sheet: liabilities Accounts payable and accruals % of COGS 26.0% 24.0% 23.0% 23.0% 23.0% 22.0% Accrued expenses as % sales 5.9% 8.0% 8.0% 8.0% 8.0% 8.0% Deferred Revenues as % of sales 14.3% 30.0% 30.0% 30.0% 30.0% 30.0% Other long-term liabilities % of sales 18.2% 15.0% 15.0% 15.0% 15.0% 15.0%
Balance sheet: equity Common stock amount 11.0 11.0 11.0 11.0 11.0 11.0 Share repurchases $ amount (show as positive) 2.9 2.9 2.9 2.9 2.9 2.9
Debt (£/$ amount) Loans due for repayment 0.0 0.0 0.0 0.0 0.0 0.0 Other long-term debt repayment 0.0 0.0 0.0 0.0 0.0 0.0
Interest Rate (%) Short term debt 3.00% 3.00% 3.00% 3.00% 3.00% Loans due for repayment 2.00% 2.00% 2.00% 2.00% 2.00% Other long-term debt repayment 0.00% 0.00% 0.00% 0.00% 0.00% Cash 1.00% 1.00% 1.00% 1.00% 1.00%
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