Search
  • thejourneyto1mil

ALIBABA Crashes! Opportunity?



Recently, Alibaba (BABA) has been hit by a number of 'BAD NEWS'.


  1. Jack Ma criticises the Chinese Government.

  2. Ant Financial IPO suspended.

  3. Chinese Government investigates anti-trust violations.


This has caused the stock price to drop from the ALL TIME HIGH of US$ 319 over 2 months to a close at US$ 222 per share on Christmas Eve (24th December 2020).

This is almost a 30% drop!


Will Alibaba suffer long term? Will this affect the fundamentals of Alibaba? Is this the BEST OPPORTUNITY EVER?


Let's break it down and study the facts.


Is Alibaba a great business?


Alibaba is the WORLD's LARGEST retail commerce business in terms of Gross Merchandise Value (GMV).


Alibaba's businesses comprises of E-Commerce, Cloud Computing, and Digital Media and Entertainment.


Let's compare Alibaba's statistics against E-bay and Amazon:

Based on the comparison table above, Alibaba's stats are just DOMINATING Ebay and Amazon with INSANE GROWTH RATE!


Besides that, Alibaba's financial performances are increasing steadily over the years with immense growth. Below is a screenshot of the key ratios of Alibaba.

Other than that, Alibaba has a wide economic moat.

Alibaba has brand monopoly, great network effect, and economics of scale.


What impact will the 'BAD NEWS' bring to Alibaba?


Scenario 1: No Impact

Investigation clears Alibaba of monopolistic practices or imposed a small fine. No impact to company's fundamentals.

Scenario 2: Mild Impact

Moderate fines with slight changes to company's business model to prevent monopolistic practices. Only a tiny percentage of merchants signing exclusive agreements with monopolistic practices compared to total number of merchants that Alibaba has.

Minimal impact to company's growth rate.

Scenario 3: Severe Impact

Major percentage of merchants found to be signing exclusive agreements which leads to Alibaba being forced to undergo major change to business model and divest parts of its investment portfolio. Strict rules being imposed onto Alibaba and major impact to company's growth rate.


What is the intrinsic value of Alibaba with regards to each scenarios?


Below numbers are calculated based on my personal Discounted Cash Flow Method and is subjected to my personal opinion.


Scenario 1: No Impact

Growth rate remains 21% year-on-year for the next 5 years. Intrinsic value: US$ 380

Scenario 2: Mild Impact

Growth rate drops to 15% year-on-year for the next 5 years. Intrinsic value: US$ 290

Scenario 3: Severe Impact

Growth rate drops to 10% year-on-year for the next 5 years. Intrinsic value: US$ 210


Summary


Current price of Alibaba is US$ 222 and it is very close to the intrinsic value of the worst case scenario for Alibaba based on above opinion. Based on these information, the potential upside for Alibaba is huge with minimal downside.


So, what do you think after reading all that I have written? Do you think it is an opportunity? Let me know in the comments section below!


 

** Above information is time sensitive. Please do your own due diligence before taking action.

 

Disclaimer:


This post here does not serve as an investment advice, and is not a recommendation to buy or sell. Please do your own due diligence before starting any form of investment. Use the content at your own risk. I do not own some of the pictures and screenshots taken from different source of websites, and the illustrations attached are purely for education purpose.

 

12 views0 comments

Recent Posts

See All