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 Alibabas potential market differ from Google?
What is Alibabas 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
B2C e-Commerce sales worldwide from FY12-FY18

Global B2C sales are rapidly increasing with

a CAGR of 12%
Alibabas 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

1058

2012A

1471

1233

2013A

2014E

1922

1700

2015E

2016E

2145

2017E

2356

2018E

Leading global e-Commerce players ranked

by GMV in FY13

800

No. of registered
accounts (mn)

519

143 180

116

200
8

Alipay

PayPal

248

TenPay

Total payment
volume (USD, bn)

88
21

Alibaba Amazon

eBay

10

10

JD.com Staples Walmart

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 e-Commerce market share distribution (FY13)

Chinese online retail sales (FY07-FY18)

RMB, bn

785 1187
56 128 263 461
2007A

1892

6493
5634
4772
3780
2760

2018E

Chinas online B2C vs. C2C sales (FY08-FY18)

100

Alibaba
JD.com

50

Others
0

2008A

C2C

B2C

2018E

Competitive Landscape:
Google vs Alibaba
Google and Alibaba are leaders in their home geographies, yet they have different specializations:

Google

Alibaba

Specialization: online advertising, search

engine, cloud software
Key geography: North America, EMEA
Established: 1998
IPO: 2004

Specialization: internet and mobile

commerce, data, logistics, finance
Key geography: China
Established: 1999
IPO: 2014

Baidu

Amazon

Google

EV/Sales

2.8x

1.8x

5.8x

EV/EBITDA

6.5x

33.4x

19.4x

P/E

40.3x

n/a

26.4x

Average
3.5x
14.8x
33.3x

Alibaba
13.5x
36.0x
50.3x

COMPANY
CONSIDERATIONS

Business Model
Platform

Finance

Alipay third party payments

Alibaba Financial Services
SME loans

Finance

Platform

Alibaba
Group

Data

Aliyun cloud computing

Alimama marketing

Data

Taobao C2C
Tmall B2C
Juhuasuan intl. C2C
1688 B2B
Aliexpress intl. B2B/B2C
Alibaba intl. B2B

Logistics

Logistics

Cainao supply chain/warehousing

Key Company Considerations

Unique market position
largest Chinese e-commerce player
cross-divisional growth opportunities
in 10 years, half of Chinas population will be shopping on Alibabas platforms

Impact of mobile monetisation

accelerating accessibility of smartphones in Chinese market
Alipay currently holds 49% of Chinas 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

Active Buyers, mn
133

145

160

172

185

202

231

FY12Q2 FY12Q3 FY12Q4 FY13Q1 FY13Q2 FY13Q3 FY13Q4

Logistics
Packages delivered by UPS globally:
4.3bn
Packages delivered by Alibaba:
5.0bn

Mobile GMV as % of GMV, RMB

bn
7.4%
4.6% 5.6%

10.7% 12.0%

14.7%

19.7%

FY12Q2 FY12Q3 FY12Q4 FY13Q1 FY13Q2 FY13Q3 FY13Q4

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)

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

60
40

250
200

100

54

60%
50%

171
38%

150
79

2015E

2016E

2017E

30%
20%

19

10%
2014E

2015E

2016E

2017E

0%

2018E

40

2018E

0%

81

60

30%
25%
20%
10%

2014E

40%

32

70
50

50
0

50%

60%
55%
50%

49

80

40%

137
25%

68

90

Growth (%)

48%

45%

94

Profit & Margin (FY14-FY18)

219

55%

40%

35%

Sales & Growth (FY14-FY18)

Sales

Margin (%)

80

20

EBIT

100

30
20

38%

34%

29%

43%

50%
47%
40%

59

30%

42

20%

27
16

10%

10
0

2014E

2015E

2016E

2017E

2018E

0%

Key Financial Metrics - Liquidity

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

Payables Days

Receivables Days

86
71

77

337
73

69

66

341

338

334

330

335

259
55

2012A 2013A 2014E 2015E 2016E 2017E 2018E

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
Alibabas 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

Mobile

Technology

enhance mobile
commerce
access vast user
bases
behavioural data
integration
expansion to
overseas markets

development of user
base through mapping
technology
targeted marketing
opportunities
healthcare sector
ventures e.g. Future
Hospital initiative

Alibaba F-1 Statement, May 2014

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

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

Discounted Cash Flow Analysis

Financial Year (Dec. Year end)
Total Turnover
growth (%)

EBIT
margin (%)

Depreciation & Amortisation

Tax @ 15.0%
Capital Expenditure
Capex/Sales (%)

Change in Working Capital

Working Capital / Sales (%)

Free Cash Flow

Discount Factor

Terminal Value

Present Value
Enterprise Value (RMB, bn)
Net Debt as at (Dec 2013)
Market Capitalisation (RMB, bn)
No. Shares (bn)
Share Price (RMB)

2013
35

2014
54
55.0%

2015
79
48.0%

2016
109
38.0%

2017
137
25.0%

2018
171
25.0%

11
31.1%

19
35.0%

32
40.0%

49
45.0%

68
50.0%

94
55.0%

0.8

1.3

2.8

3.8

5.7

7.8

Terminal Period

(1.6)
2.5
-7.3%

(2.8)
4.5
-8.5%

(4.8)
6.7
-8.5%

(7.4)
9.3
-8.5%

(10.2)
11.6
-8.5%

(14.1)
14.5
-8.5%

0.0
0.0%

(3.5)
6.5%

3.1
-3.9%

4.1
-3.7%

4.4
-3.2%

9.3
-5.4%

26

40

57

82

82

0.90

0.80

0.72

0.65

0.58

0.58

999

8.3
722
-4.776
727
2
304.4

21.0

29.2

36.6

47.8

580

DCF

P/E - Trading

182

150

309

304

309

187

EV/EBITDA - Trading

EV/Sales - Trading

304

Current share price: 677 RMB

Valuation Summary

198

200

203

250
Share price, RMB

300

350

APPENDIX

Inorganic Growth History

Mobile
Company

Date

Description

Potential Strategy

UCWeb

June 2014

Mobile web browser

developer

Enhance mobile commerce

Access UCWebs 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

Alibaba F-1 Statement, May 2014

Inorganic Growth History

Technology
Company

Date

Description

Autonavi

July 2014

Digital map content,

navigation and locationbased solutions

April 2014

Product identification,
authentication and tracking
system developer

July 2014

Chinas leading department

store operators

CITIC 21CN

Strategy

Development of Alibabas m-commerce user

base through mapping technology
Targeted marketing opportunity
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

Retail
Intime Retail

Alibaba F-1 Statement, May 2014

Potential for an offline-to-online multi channel

retail model

Inorganic Growth History

Media & Entertainment
Company

Date

Description

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

Advance Alibabas digital media
company (500mn unique
vision to be available anywhere at
visitors monthly)
anytime
Improve targeted marketing

Evergrande
FC

July 2014

Popular Chinese football

team, first ever winner of
Asian Football
Confederation
Champions League Cup

Alibaba F-1 Statement, May 2014

Strategy

Marketing access to millions of

football fans

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 Haiers industry experience and
expertise in Chinas tier 3 and 4 cities

Alibaba F-1 Statement, May 2014

Income Statement
Alibaba Income Statement
Net Sales

2012A

2013A

2014E

2015E

2016E

2017E

2018E

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

0.715

0.805

Depreciation & Amortization

EBITDA
Other income

1.3

2.8

3.8

5.7

7.8

0.0

0.0

0.0

0.0

0.0

20.1

34.5

53.0

74.0

101.7

0.0

0.0

0.0

0.3

0.9

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

5.5

10.1

18.5

31.6

49.4

69.0

95.3

Profit before taxes

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

4.7

8.6

15.7

26.9

42.0

58.6

81.0

2.4

2.4

2.4

2.4

2.4

Net income

`
Shareholder information
Diluted weighted average shares outstanding

2.5

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

0.0

0.0

0.0

0.0

0.0

Dividends

Balance Sheet
2012A

2013A

2014E

2015E

2016E

2017E

2018E

21.744
3.893
0.0
2.3
27.9

32.686
8.113
0.0
2.4
43.2

40.8
11.2
0.0
4.3
56.3

67.9
15.8
0.0
6.3
90.1

110.1
20.8
0.0
8.7
139.6

168.3
24.6
0.0
10.9
203.8

255.0
25.6
0.0
13.7
294.3

Non-current assets
Net PP&E
Goodwill
Other intangibles
Other assets
Total assets

2.463
11.436
0.4
5.1
47.210

3.808
11.294
0.3
5.2
63.8

7.0
11.3
0.3
10.7
85.7

10.9
11.3
0.3
15.8
128.5

16.4
11.3
0.3
21.9
189.5

22.3
11.3
0.3
27.3
265.0

29.0
11.3
0.3
34.1
369.0

Liabilities
Current liabilities
Short term debt
Accounts payable and accruals
Other payables
Deferred Revenues
Total current liabilities

1.3
4.7
1.5
4.4
11.751

5.4
9.0
4.7
4.9
23.995

0.0
15.0
0.2
16.1
31.3

0.0
22.0
0.4
23.8
46.1

0.0
30.0
0.6
32.8
63.4

0.0
37.0
0.8
41.0
78.8

0.0
47.0
1.1
51.2
99.4

0.0
1.0
12.8

22.5
6.3
52.7

22.5
8.0
61.8

22.5
11.9
80.5

22.5
16.4
102.2

22.5
20.5
121.8

22.5
25.6
147.4

31.5
0.0
2.9
34.413
47.210

11.0
0.0
0.0
11.0
63.8

11.0
15.8
(2.9)
23.9
85.7

11.0
42.8
(5.8)
48.0
128.5

11.0
85.0
(8.7)
87.3
189.5

11.0
143.8
(11.6)
143.2
265.0

11.0
225.0
(14.5)
221.6
369.0

Alibaba Balance Sheet

Assets
Current assets
Cash and cash equivalents
Accounts receivable
Prepaid expenses
Other current assets
Total current assets

Non-current liabilities
Total long-term debt
Other long-term liabilities
Total liabilities
Equity
Common stock
Retained earnings
Treasury stock
Total equity
Total Liab.& Equity

Cashflow Statement
Alibaba Cash Flow Statement

2014E

2015E

2016E

2017E

2018E

Net Income

2013A

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

27.2

29.6

51.5

87.7

140.6

29.6

51.5

87.7

140.6

219.5

Beginning Cash
Ending Cash

27.2

Financial Assumptions
Alibaba Financial Assumptions
Income statement
Sales growth %
COGS as % of sales
Annual depr. as % of previous PPE
SG&A as % of sales
Amortization of other intangibles amount
Non-recurring items amount
Effective tax rate
Shareholder info
Diluted weighted average shares outstanding (m)
Dividend per share growth rate
Balance sheet: current assets
Accounts receivable as % of sales
Inventories % of COGS
Other current assets % of sales
Balance sheet: non-current assets
Capital expenditures % of sales
Other assets % of sales
Balance sheet: liabilities
Accounts payable and accruals % of COGS
Accrued expenses as % sales
Deferred Revenues as % of sales
Other long-term liabilities % of sales
Balance sheet: equity
Common stock amount
Share repurchases $ amount (show as positive)
Debt (/$ amount)
Loans due for repayment
Other long-term debt repayment
Interest Rate (%)
Short term debt
Loans due for repayment
Other long-term debt repayment
Cash

2013A

2014E

2015E

2016E

2017E

2018E

72.4%
28.2%
32.7%
40.7%
0.0
0.9

55.0%
30.0%
35.0%
35.0%
0.0
0.0
15.0%

48.0%
30.0%
40.0%
30.0%
0.0
0.0
15.0%

38.0%
30.0%
35.0%
25.0%
0.0
0.0
15.0%

25.0%
30.0%
35.0%
20.0%
0.0
0.0
15.0%

25.0%
30.0%
35.0%
15.0%
0.0
0.0
15.0%

2.389

2.4
0.0%

2.4
0.0%

2.4
0.0%

2.4
0.0%

2.4
0.0%

23.5%
0.0%
6.8%

21.0%
0.0%
8.0%

20.0%
0.0%
8.0%

19.0%
0.0%
8.0%

18.0%
0.0%
8.0%

15.0%
0.0%
8.0%

7.3%
15.0%

8.5%
20.0%

8.5%
20.0%

8.5%
20.0%

8.5%
20.0%

8.5%
20.0%

26.0%
5.9%
14.3%
18.2%

24.0%
8.0%
30.0%
15.0%

23.0%
8.0%
30.0%
15.0%

23.0%
8.0%
30.0%
15.0%

23.0%
8.0%
30.0%
15.0%

22.0%
8.0%
30.0%
15.0%

11.0
2.9

11.0
2.9

11.0
2.9

11.0
2.9

11.0
2.9

11.0
2.9

0.0
0.0

0.0
0.0

0.0
0.0

0.0
0.0

0.0
0.0

0.0
0.0

3.00%
2.00%
0.00%
1.00%

3.00%
2.00%
0.00%
1.00%

3.00%
2.00%
0.00%
1.00%

3.00%
2.00%
0.00%
1.00%

3.00%
2.00%
0.00%
1.00%

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