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nine_inch_nerd 11 februari 2022 22:00

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Alibaba: Beijing Steps In
Bohdan Kucheriavyi

The biggest mistake of Alibaba (BABA) bulls is to think that Beijing's crackdown against the company is over and the stock is significantly undervalued at the current levels. The problem with this thinking is that it ignores the shift in policymaking by the CPC that has taken place in the recent year, which makes the use of traditional valuation metrics to justify a long-term long position in the company relatively useless at this point. As Beijing strengthens its grip over entire industries and becomes a direct competitor to the country's tech behemoths, it's hard to see how Alibaba and its peers will be able to successfully compete with the state in the foreseeable future.

With each passing quarter, more key risks start to materialize and negatively affect Alibaba's business, which is reflected in a massive depreciation of its shares in the last year. While in my latest article on the company I highlighted how the CPC will compete with Alibaba's Ant Group directly via the launch of digital yuan, in this article I will highlight how the new regulations by the state will make it even riskier to hold the company's stock for the long-term.

Beijing Is Becoming A Direct Competitor Of Alibaba

In addition to becoming a direct competitor in the digital payment space, China is also becoming a direct competitor of Alibaba in the cloud and data fields as well. The cloud business itself is an important part of Alibaba, as it's one of the few fast-growing parts of the company, which is able to offset the slow growth of other sources of income. Alibaba's latest Q2 earnings report showed that while revenues of its core customer management business increased by only 3% Y/Y to $11.13 billion, revenues of its cloud computing business increased by 33% Y/Y to $3.1 billion and accounted for 10% of the overall revenues. The growth of the cloud computing business is attributed mainly to increased demand for cloud services within the mainland, and as China digitizes its economy, it's safe to say that demand will remain high in the following years.

The problem is that as Alibaba grows its cloud business, China itself slowly becomes a major player in the cloud computing field as well. Just last August, the government has ordered all state firms to migrate their data from private cloud providers to a state-backed cloud service by the end of September 2022 and at the same time prohibited them from signing new cloud contracts with third parties such as Alibaba. Then in September, reports started to surface that the country's state-run China Electronics Corp. is entering the cloud business as well. In addition to the state support, the biggest advantage of China Electronics Corp. is that it has everything going for it to compete with China's tech behemoths. The company uses the chips of its subsidiary Tianjin Phytium Information Technology Co. to power its data centers and operates them through the Kylin OS, which has been developed by the National University of Defense Technology.

Given the fact that Alibaba continues to be the biggest provider of cloud solutions in China, even though its market share has decreased by a couple of percent Y/Y in the latest quarter, the company stands to lose the most from Beijing's intervention in the business. Right before Christmas of 2021, the news came out that China's Ministry of Industry and Information Technology halted its cloud partnership with Alibaba over safety concerns and there's little possibility that it will be resumed given the shift in state policy. As a result, as investors are waiting for Alibaba to report its Q3 earnings results, there's a risk that the growth of the cloud business might disappoint many in the quarters to come since the events of the last year showed that Alibaba can't successfully compete with Beijing. At the same time, the inability to work with governmental agencies is also likely going to negatively affect its financials in the coming years.

More Regulations On The Way

In addition to competing in the same businesses, Beijing is also constantly imposing new rules that make it harder for Alibaba and its tech peers to keep their competitive advantages for long. While most of the bullish investors have been forecasting Alibaba's Q3 results in recent weeks, Beijing adopted a new set of regulations that go beyond Q3 and could have an even greater negative effect on Alibaba's financials in the long run.

Before highlighting those regulations, it's important to understand why they matter in the first place by looking at how Alibaba is structured. While the company positions itself as an eCommerce company, a significant amount of its revenues is generated by providing digital advertising services. In fact, with a 29% market share in 2021, Alibaba is the biggest player in China's digital advertising market. The problem is that Alibaba's advertising revenues are consolidated within the commerce business, which accounts for 85% of all revenues, so it's impossible to know how much exactly is the company making from providing advertising and marketing services to its merchants.

However, we do know that the major revenue source within Alibaba's advertising business is Alimama. Thanks to its proprietary algorithms, Alimama collects and analyzes thousands of entry points of users such as behavioral data, engagement, and others within the Alibaba ecosystem to help merchants efficiently spend their advertising budgets and increase conversions. In its 2014 S-1 filing, Alibaba described Alimama as follows:

Alimama operates a cluster of servers that is capable of analyzing terabytes of data points for the modeling of tens of billions online advertising impressions. With rich consumer data generated from our China retail marketplaces, we utilize our proprietary algorithms to evaluate the quality of advertising inventory from thousands of publishers and make predictions of click through rates and conversion rates of online marketing messages. This capability enables sellers to improve consumer targeting efficiency and enhance the return on investments for online marketers.

The problem is that Alibaba is not frequently mentioning Alimama to foreign investors and its website itself is available in Chinese only. As a result, it makes it hard to analyze Alibaba's overall advertising business. However, a few years ago Alibaba's CFO Maggie Wu publicly said that over 60% of the company's overall revenues are generated by Alimama. Considering this, it's safe to say that any disruption to Alimama's business could negatively affect Alibaba's overall performance. What's worse is that given the recent developments, it seems that's exactly what's about to happen.

Meer:
seekingalpha.com/article/4485705-alib...

nine_inch_nerd 12 februari 2022 22:26

1

Ter info:

seekingalpha.com/article/4486557-alib...

Alibaba: SoftBank Is Not A Problem
Growth at a Good Price

Alibaba Group Holding (BABA) stock took a major dip last week, as news that it had registered 1 billion new American Depository Shares (“ADS”) rocked the market. Filings showed that BABA intended to register the shares by having 8 billion Hong Kong shares deposited.

The new shares would not have been dilutive, because the registration was merely a transfer of Hong Kong shares to New York. Nevertheless, rumours began swirling. Shortly after the SEC filing was released, Citigroup (C) analyst Alicia Yap opined that the 1 billion share registration may be due to SoftBank (OTCPK:SFTBY) planning to unload its stake. BABA stock slid 6% the day that news broke.

While a SoftBank sale wouldn’t technically be dilutive, it would have the same practical effect, as the company has been sitting on a 25% Alibaba stake since its IPO. Small portions of the stake have been sold here and there, but SoftBank has mostly been holding firm. Were SoftBank to sell, billions of ordinary shares (equivalent to hundreds of millions of ADS) would suddenly be trading on the open market. The sale would lead to a sudden influx of shares on the market, increasing the supply. In economics, an increase in quantity supplied without an equivalent increase in demand leads to a lower price. So, we’d expect SoftBank unloading 25% of BABA’s float onto the market all at once to lower the stock’s price.

It was a valid concern at the time. It may have even been the culprit behind BABA’s 6% stock price decline. On Friday, February 4, BABA closed at $122.22. The following Monday, it closed at $114.82. News of the sale broke just before market open that Monday. So, it was a major, potentially material news story on the day of BABA’s biggest recent slide.

Fortunately, it turned out not to have been true. This past Friday, SoftBank reported that it had no plans of selling BABA stock. The company didn’t rule out the possibility that it was among the parties depositing Hong Kong ordinary shares, but it did rule out a major sale. Given this, it is fair to conclude that BABA’s biggest potential near term risk has been thwarted, and that the stock could continue climbing as long as its upcoming earnings release is solid.

Risks BABA Faces at the Moment

It might seem strange to describe the thwarted SoftBank sale as BABA’s “biggest near term risk.” From a fundamentals standpoint, such a development is not a risk at all–a sudden influx of selling isn’t a risk to the business itself (unless it’s trying to sell equity, which BABA isn’t).

Certainly, earnings seem like a bigger potential risk at first glance. BABA has a third quarter (calendar fourth quarter) earnings release coming up, and if recent U.S. stock prices moves are any indication, a miss won’t be tolerated. In this environment of rising interest rates, investors are shedding tech stocks on even the slightest hint of weakness in earnings. If this is happening to U.S. tech stocks, it could happen to Chinese stocks as well. Many BABA holders are American, and are considering BABA stock along with U.S. based investments. So even though the U.S.’s rising interest rates don’t affect Alibaba the company, they may affect BABA stock.

On top of that, there is always the possibility of the Chinese Communist Party (“CCP”) renewing its big tech crackdown. Last year, the CCP’s regulatory push cost BABA at least $2.8 billion in fines plus hundreds of millions in new taxes. This year, we haven’t seen many signs that the CCP intends to resume the crackdown, but if it does, more high costs could be coming.

So there are plenty of near-term risks facing BABA. Some became material last year, and cost the company billions of dollars. Why, then, do I say that the SoftBank sale would have been the “biggest” near term risk facing BABA shareholders?

It comes down to two factors:
Investor psychology.
First, let’s take a look at SoftBank’s BABA holdings. SoftBank currently owns 5.39 billion ordinary shares, equal to about 673.67 million ADS. Alibaba’s shares outstanding, stated in ADS terms, is 2.7 billion. So, SoftBank has about 25% of the float.
How much would that lower the price if SoftBank tried to unload all of it at once?
It’s hard to say, because it depends on the quantity demanded on the same day that BABA tried to sell. However, a 25% supply increase will likely have a big impact on price. To use a simple supply and demand function for good ‘A’ where supply is perfectly inelastic at 10, and the demand curve is given by:
Now of course, this basic supply and demand analysis doesn’t tell us what SoftBank’s sale would actually do. The demand function I gave above was completely arbitrary, and the assumption of inelastic supply wouldn’t hold in reality. However, it does show that a 25% increase in the supply of something can lead to a large decrease in price. Potentially, up to 25%.

So, had SoftBank chosen to unload its stake, its action would be a major risk in two senses:

First, it would be a business risk to BABA itself were it trying to sell shares. When a company issues stock at a lower than expected price, it has to sell ‘x’ more shares to raise the same amount of money. That increases the cost of capital. Thankfully, BABA is not issuing equity–in fact, it’s buying shares back. But at least theoretically, lower stock prices increase companies’ costs.

Second, it would have a psychological impact on short term shareholders. Although daily price swings aren’t necessarily a bad thing to those who aim for 10 year holding periods, they can ruin investments that were intended to be short term. If you intend to sell a stock at a profit shortly after buying it, and it goes down, your short term thesis is blown and you have to either sell at a loss, hedge, or come up with reasons to justify a longer holding period. The temptation to panic sell may increase. Also, those who buy calls at times of declining stock prices may see their options expire worthless. So while SoftBank selling wouldn’t have been a huge risk to BABA, it would have been a MASSIVE risk to some shareholders–particularly with short time horizons or those holding calls.

Implications of SoftBank Not Selling

The most obvious implication of SoftBank not selling its 25% BABA stake is that we can count on the supply of shares being relatively stable. Alibaba is not selling stock, its biggest institutional shareholder isn’t selling, so no “new” shares are hitting the market.

This leaves us relatively free to analyse BABA based on fundamentals, trusting that its stock price will follow its business results. When you get a major long term shareholder selling stock, you can’t always count on the price to follow earnings results, as the simple supply and demand aspect of the sale outweighs business results in the short term. It’s the same thing with dilutive equity issues. Now that we know BABA is neither being diluted nor having a 25% holder bail, we can focus on the business.

Dividend Collector 12 februari 2022 22:43

1

Goed om te lezen dat het Softbank verkooprisico een storm in een glas water lijkt.

Nu op naar de cijfers.

Prettig weekend.

nine_inch_nerd 14 februari 2022 08:19

0

Ter info

seekingalpha.com/article/4486650-alib...

Alibaba: The Time To Buy Is Now
Simple Investing

With the regulatory overhang over big tech companies in China, many investors have been increasingly doubtful or skeptical about the success of Chinese big tech business models in the future. As an analyst in a hedge fund covering China, I believe that many of these Chinese big tech companies are currently pricing in little growth. In particular, I think that Alibaba (BABA) looks interesting at current valuations. I am initiating coverage of the stock with this article as I believe that the risk reward for Alibaba has skewed too positively for anyone to ignore. My analysis is based on fundamental research and seeks to provide a simple and objective view on Alibaba.

........

........

Conclusion

After looking deeper into the current state of Alibaba's fundamental business and the strategic areas of growth it is investing into for the future, I am certainly more optimistic about the company. Alibaba is currently trading at 14.6x forward P/E, which is more than two times lower than its historical average. As the wise saying of Warren Buffett goes: "Be fearful when others are greedy and greedy when others are fearful". As much as investors can be irrational on the way up, they can be similarly irrational on the way down. Investors are simply ignoring the growth that Alibaba's China and international commerce as well as cloud business will bring.

Alibaba's China commerce will continue to grow as the company leverages on its huge consumer base with strong spending power. Alibaba's international commerce will start to see more market share gains as management prioritises growth in new markets, and as the company leverages on its strengths in its e-commerce brand and in logistics to compete with local and international players. Alibaba's cloud business still has a long runway and as the market leader, market consolidation will mean improving share for the top 4 players as economies of scale increase. Lastly, Alibaba is investing in its future by spending incremental profits on key strategic growth areas and using free cash to acquire businesses for future opportunities or to improve existing businesses. Based on my SOTP valuation, I have my target price for Alibaba at $182, implying 49% upside.

nine_inch_nerd 14 februari 2022 08:22

0

Ter info

Alibaba: Getting Closer To A Graham Net-Net Deal
Feb. 13, 2022 8:45 AM

Summary

The dream deal for a value investor is a Graham-type net-net deal.
Alibaba Group (BABA), under its current valuation, is getting closer to such a deal.
Currently, more than 20% of its market cap is just cash, and almost 50% is cash plus its properties and equity investments.
Looking forward, it will only get closer to a net-net deal inthe next few years and is projected to become 100% such a deal by 2025.
No wonder it just authorized the largest share repurchaseprogram in the company's history.
I do much more than just articles at Envision Early Retirement: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »
seekingalpha.com/article/4486680-alib...

Rider 14 februari 2022 11:47

1

quote:
nine_inch_nerd schreef op 14 februari 2022 08:22:
Ter info

Alibaba: Getting Closer To A Graham Net-Net Deal
Feb. 13, 2022 8:45 AM

Summary

The dream deal for a value investor is a Graham-type net-net deal.
Alibaba Group (BABA), under its current valuation, is getting closer to such a deal.
Currently, more than 20% of its market cap is just cash, and almost 50% is cash plus its properties and equity investments.
Looking forward, it will only get closer to a net-net deal inthe next few years and is projected to become 100% such a deal by 2025.
No wonder it just authorized the largest share repurchaseprogram in the company's history.
I do much more than just articles at Envision Early Retirement: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »
seekingalpha.com/article/4486680-alib...

Enorme cashpositie en ieder jaar komt er een pak cash bij.

Dividend Collector 15 februari 2022 10:35

1

Nu staat de aankondiging van de cijfers op 24/2 wel op de website.

www.alibabagroup.com/en/ir/home

nine_inch_nerd 15 februari 2022 10:58

1

quote:
Dividend Collector schreef op 15 februari 2022 10:35:
Nu staat de aankondiging van de cijfers op 24/2 wel op de website.

www.alibabagroup.com/en/ir/home

Bedankt voor je post. Top!

Ik hoorde vanmorgen dat de Chinese regering de economie nogmaals een extra impuls wilt geven door meer geld hierin te pompen. Kan het tot nu toe nog niet vinden 'on the web'.
Op de Frankfurtse beurs in ieder geval mooi groen.

Rider 15 februari 2022 13:59

1

www.marketwatch.com/story/ray-dalios-...

nine_inch_nerd 16 februari 2022 08:48

0

Dit is altijd positief en niet verkeerd:
"meevallende Chinese inflatiecijfers"

nine_inch_nerd 16 februari 2022 10:24

0

Ter info, BABA komt ook ter sprake:

Chinese Technology Companies See the Metaverse as an Investment Opportunity

The metaverse offers a potential market worth $8 trillion.
The first Chinese tech giants to venture into the virtual universe could be Tencent, Alibaba (NYSE:BABA), ByteDance and NetEase (NASDAQ:NTES).
There are many doubts about what the metaverse will look like in China, due to the strict control over technology companies and the crackdown on cryptocurrencies.
Despite heavy regulations and expected censorship, China’s top tech companies plan to embark on the metaverse as well, a potential market of about $8 trillion, according to Morgan Stanley (NYSE:MS).

Chinese tech giants are following in the footsteps of US global competitors such as Meta – Facebook (NASDAQ:FB) and Microsoft (NASDAQ:MSFT), which have acquired the gaming company, Activision, for this purpose.

However, Chinese tech companies are beginning their foray into the virtual universe cautiously. It is expected that in the future the government will also control the contents of the metaverse and apply a very strict regulatory regime.

Since last year, Beijing has been enduring controls on the activity of its technology companies. The Xi Jinping government has clipped the wings of private companies and has prioritized the development of its state-owned technology companies.

A fundamental step for Chinese companies

The pioneering companies in the metaverse market would be Alibaba, NetEase, Tencent and ByteDance, the owner of TikTok. The Chinese market offers very large growth potential, estimated at around 52 trillion yuan ($8 trillion), according to estimates by the US bank Morgan Stanley.

"Metaverse is the future of social media," Winston Ma, managing partner at CloudTree Ventures, told CNBC. "All China’s tech giants have to embrace it to find new ways to engage the youngest generation of internet users..." Ma said this step “is critical” at a time of maturing business models for Chinese technology companies, through smartphones and the mobile Internet.

Gaming, virtual reality and social networking applications are expected to be the first to be launched in the virtual world market. Even the market for NFTs (non-fungible tokens), where anything from an avatar to any piece of digital art can be purchased, is likely to catch on very quickly.

What the tech giants think about the metaverse

Representatives of major technology companies are optimistic about the growth potential offered by the metaverse in China. Tencent CEO Pony Ma said in November that this technology sector can support the growth of the gaming industry.

Tencent is the largest global gaming company and has a huge library of games for PC and mobile devices. It is also the owner of WeChat, the messaging service with more than 1 billion users.

Another company that is committed to the metaverse and is preparing to enter it fully is ByteDance. The company has expanded its involvement in the gaming industry and last August bought Pico, the maker of virtual reality headsets.

While Alibaba plans to have its announced augmented reality glasses available this year on its e-commerce platform, which will be used to hold virtual meetings.

For the Winter Olympics in Beijing, Alibaba launched Dong Dong, a “virtual influencer” that provides information about the Olympics and promotes game items.

Meanwhile, mega game company NetEase has been developing metaverse apps at its Hainan base since last year, according to local media reports.

On the Flipside

Antitrust rules and usage restrictions that apply to Internet platforms in China are likely to apply to spaces dedicated to the metaverse as well. Among them is the use of online games by those under 18 years of age. For Hanyu Liu, a China market analyst at Daxue Consulting, the government “knows just when and where it needs to stay its hand; close enough so that it can keep a careful watch, but not to the point where it would cause irreversible harm to the industry.”
Why You Should Care

The truth is that investments and experimentation in the metaverse have already begun in China at the hands of large technology companies. Although it is also very likely that it is a very sui generis metaverse due to censorship and regulations.

'belegger'' 16 februari 2022 19:37

2

Nu live op Yahoo Finance een interview met Charlie Munger in zijn rol bij Daily Journal, met vragen over Alibaba.

nine_inch_nerd 16 februari 2022 19:54

0

quote:
'belegger'' schreef op 16 februari 2022 19:37:
Nu live op Yahoo Finance een interview met Charlie Munger in zijn rol bij Daily Journal, met vragen over Alibaba.

Voor de twitteraars:
twitter.com/YahooFinance/status/14939...

'belegger'' 16 februari 2022 20:01

0

Het lijkt om dezelfde annual meeting van DJCO te gaan, maar de vragenstellers verschillen. Bij Yahoo Finance is het een vrouw die vragen opleest die zijn ingezonden en op Twitter zie ik een man. Later maar eens kijken of we ergens een wrap-up, of transcript of hoe ze dat ook noemen, kunnen vinden.

Dividend Collector 18 februari 2022 10:14

0

Iemand een verklaring voor de plotselinge daling van de koers in Hong Kong? Aandeel staat nu op de Duitse beurs ook weer flink in de min.

nine_inch_nerd 18 februari 2022 10:46

1

quote:
Dividend Collector schreef op 18 februari 2022 10:14:
Iemand een verklaring voor de plotselinge daling van de koers in Hong Kong? Aandeel staat nu op de Duitse beurs ook weer flink in de min.

Als je twitter hebt, hier zegt iemand iets:

twitter.com/Sino_Market/status/149456...

Dividend Collector 18 februari 2022 11:31

0

Dank n.i.n.

Van Seeking alpha wordt je ook niet echt wijzer haha of je nou wel of niet moet instappen ;-). Zie bijlage. Wat een tegenstrijdige geluiden allemaal. Ik houd zelf aan wat ik heb en kijk na 24/2 wel eens verder.

Bijlage:

nine_inch_nerd 18 februari 2022 12:20

0

quote:
Dividend Collector schreef op 18 februari 2022 11:31:
Dank n.i.n.

Van Seeking alpha wordt je ook niet echt wijzer haha of je nou wel of niet moet instappen ;-). Zie bijlage. Wat een tegenstrijdige geluiden allemaal. Ik houd zelf aan wat ik heb en kijk na 24/2 wel eens verder.

Idem.
Ik zit via Frankfurt met een GAK van de rond €101. Dus HOLD.

Dividend Collector 18 februari 2022 16:12

1

seekingalpha.com/news/3801954-chinese...

Meituan, Alibaba fall as China pushes for lower food delivery fees

Chinese food delivery co. Meituan (OTCPK:MPNGF) dropped 12% after reports that Chinese regulators called for lower fees for food delivery. Shares of Alibaba (NYSE:BABA), which controls Meituan rival Ele.me, fell 4.4%.

Betreft inderdaad meer prijsregulatie.

voda 18 februari 2022 17:00

1

Amerikanen treffen Alibaba en Prosus

De Chinese e-commercereus Alibaba BABA -4,75% opent op Wall Street met een verlies van bijna 5 procent. Het platform AliExpress van Alibaba is opgenomen op een Amerikaanse lijst van merken die het auteursrecht en handelsmerken schenden. Op die lijst werd ook het sociaal medium WeChat van Tencent toegevoegd. Grootaandeelhouder Prosus
PRX -2,94% van Tencent neemt in Amsterdam een duik van bijna 3 procent. ‘Zowel AliExpress als WeChat faciliteren in belangrijke mate namaak’, klinkt het bij de Amerikanen. De VS stellen deze lijst jaarlijks bij.

www.tijd.be/markten-live/live-blog/oe...

AEX 860,32 -5,04 -0,58% 12:27


Germany40^	17.712,00	-0,70%
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Nasd100^	17.274,20	-1,56%
US500^	4.987,71	-1,22%
Japan225^	37.338,48	-1,75%
Gold spot	2.381,48	+0,09%
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EBUSCO HOLDING	+3,77%
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AMG Critical ...	-2,45%
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