Alibaba Group Holding Ltd (BABA)

[msmithgold]

Alibaba Investment Thesis & Value Investing In Tech Space

Summary of Coho Capital Letter - Value Investing in Tech

Alibaba:

Dominates world’s largest e-commerce market with 49% share compared to Amazon’s 20% share of the US online retail market; approximately 73% of all online retain transactions in China utilize Alibaba’s online payment platform; profit margins of 44% compared to 0.5% for Amazon
Has a lot of things we desire in a business: network effects, switching costs, scalability, latent pricing power
Grew sales 54% y-o-y in the most recent quarter and counts 493 million monthly active users across its three platforms
Supplanting of brick and mortar by e-commerce is happening more quickly in China than US due to less robust physical retail infrastructure; Chinese e-commerce sales grew 36% last year to ~$900B and now roughly 18% of aggregate retail sales (compared to 12% in the US)
With 80% share of Chinese e-commerce, fair to think of Alibaba as a toll on online Chinese consumption
BCG predicting 20% CAGR in online spending over the next four years
Multiple business units reinforce each other, creating a business ecosystem that grows more valuable with each additional user and transcation
Provides a platform for onboarding new services such as online payment, mobile operating system, map service supplier, online grocer, group shopping, cloud computing, video hosting and streaming and others
Massive platform of users opens multiple pathways to monetize user data; opportunities to cross-sell additional products and services to its large and growing base of customers
Despite its dominant position and compelling growth opportunities, does not have a demanding valuation
Core business should trade at least 25x forward earnings given its inherent operating leverage and projected sales growth of over 28% over the next few years – this results in stock price of $114
Add $15/share for investments and stake in Ant Financial – gets you to $129 (27% higher than today’s quotation)
Expect emergent businesses such as Alicloud and digital entertainment to be material contributors to future economic returns providing downside support
After Amazon, Alibaba is our second largest position

https://investoralmanac.com/2017/03/08/coho-capital-letter-value-investing-in-tech-alibaba-facebook-google-visa-sp/