In your research note published in June, you describe Alibaba's core business in China as solid and that none of its plans abroad can really have an influence on the performance. Why?
Much of our valuation is derived from Alibaba's potential in China, with only modest contribution coming from regions outside of China. Despite all the attention that Alibaba's management team placed on international expansion during its roadshow, we don't see it developing into anything more than a niche player in the U.S. or Europe for many of the same reasons we don't expect much competition for Alibaba in China: a powerful network effect. Our analysis shows that once an online shopping platform reaches 10% of a local population as its active user base, it has reached a point of critical mass that attracts merchants and advertisers and drives further user growth. With Amazon already having almost 40% of the U.S. population on its B2C marketplace and eBay having more than 20% on its B2C marketplace, we don't think there will be enough differentiation from Alibaba's different marketplaces to drive sufficient user growth to reach critical mass.
“BABA” quote is around 90$. Is it consistent with performance and growth potential ?
We believe shares are fairly valued at current levels and accurately prices in the company's future cash flow potential. Our $90 per
During the summer there were some questions about ongoing inquiries on accounting malpractices. Second the group benefits from some reporting exemptions. What could be the consequences of regulatory irregularities ?
While there have been some accounting irregularities within Alibaba's subsidiaries, we see them as generally isolated events and not symptomatic of larger issues. That being said, we've assigned the company a high uncertainty rating - suggesting that investors must have a risk-tolerance when investing in this name - based on increased competitive, regulatory uncertainty, and execution risks.
