Alibaba operates as an online and mobile commerce company in China and internationally. It is the largest such company in the world in terms of gross merchandise volume. Its major business include: Taobao Marketplace (China’s largest online shopping destination), Tmall.com (third-party platform for brands and retailers), Juhuasuan (online group buying marketplace), and Alitrip (online travel booking platform). This week, I fundamentally analyze Alibaba’s stock. I review BABA’s operating segments, look at its key ratios, derive the intrinsic value using Discounted Cash Flow (DCF) analysis, and calculate the expected rate of return from this investment. Since this is a long video, please feel free to use the time stamps in the video if you only wish to watch certain topics.
I review various key ratios such as Revenue, Net Income, Shares outstanding, Dividends, Payout Ratio, Free Cash Flows (FCF), Financial Leverage, Current Ratio, Debt to Equity Ratio, Return on Equity (ROE), Days Sales Outstanding (DSO), Days Inventory, Payable Period, Cash Conversion Cycle, Inventory Turnover, etc.
After taking into account 2020’s free cash flow of $20,283 million figure, a 10% growth rate of FCF (growth for the next 10 years), 10% discount rate, 5% long term growth rate (growth from 10 year mark to perpetuity), 2,742 million shares outstanding, and $18,041 million of long term debt, the DCF analysis yields us an intrinsic value of $223 per share. If we drop the discount rate from 10% to 9%, the intrinsic value comes to $286 per share. Using the current stock price of about $237 per share, and taking into the shares outstanding and future projects of free cash flows, we get the annual expected rate of return to be 3.7% if we hold this security through 2060.
0:42 Operating Segments
3:25 Key Ratios Analysis
13:31 Discounted Cash Flow Analysis / Intrinsic Value
16:06 Expected Rate of Return Calculation
17:23 Summary / Conclusion
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Alibaba’s Website: here
Morningstar Key Ratios Link: here.
Useful Resources here.
Alibaba Group Holding Limited, also known as Alibaba Group and Alibaba.com, is a Chinese multinational technology company specializing in e-commerce, retail, Internet, and technology.
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