Stop kicking yourself you missed buying AMZN &

…buy AliBaba

http://seekingalpha.com/pr/16720929-alibaba-group-announces-…

It’s a free time machine that will take you back to 2005 and allow you to buy the equivalent of Amazon, EBay, PayPall.

Latest Q Diluted non GAAP EPS Growth = 38%
Trailing P/E = 98.41/3.69 = 26.67
1YPEG = 0.70 - not bad for a mega corp.

The business model is proven, you have all seen the future and how the story ends and you have all been repeating what you have heard from detractors sticking it to Amazon over lack of profitability.

Well - unless you are allergic to investing in China (which I understand), don’t make the same mistake again - grab this one!

Ant

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Well - unless you are allergic to investing in China (which I understand),

Somewhat allergic.* I’ve heard about some shareholder “unfriendly” deals Jack Ma has put together. Do you have information confirming or discrediting these news?

BTW, what’s wrong with putting money into AMZN?

Denny Schlesinger

  • One of my best investments this century was a Chinese stock, KNDI, but I trust the founder and CEO.
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Thank you for bringing this to my attention. Took your advice few months ago, after some due diligence, and bought a small piece. Not without risk but agree future looks promising.
Scott

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BTW, what’s wrong with putting money into AMZN?

AMZN doesn’t pay a dividend. Since I need income to pay my bills, AMZN is not an appropriate investment for me.

b&w

AMZN doesn’t pay a dividend. Since I need income to pay my bills, AMZN is not an appropriate investment for me.

b&w

You can always make your own dividend. Amzn has paid out tremendously over the last 10 years.

http://www.google.com/finance?q=NASDAQ%3AAMZN&ei=03-HWMn…

Andy

1 Like

BTW, what’s wrong with putting money into AMZN?
Nothing unless you think SHOP or BABA has a better chance to make even more money from this point in time. I can see SHOP going up by 10x and BABA by 5x and AMZN 3x in the same time frames. BABA beats AMZN on every valuation metric. SHOP doesn’t face the law of large numbers with its market cap yet so could do the best I believe - although I am sure they will get bought out before that gets realised - maybe by AMZN unless anti-trust blocks that.
Ant

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Alibaba is a Chinese company. How sure are you about any of their numbers? How do you know they are not making them up?

Once bitten, twice shy. I’ve had my fill of crooked Chinese companies. Plenty of good companies in America.

-----
Invest wisely my friends

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Cmon - you can do better than that. I’m just laying out a thesis which you can agree or disagree with and we can discuss but any numbers could be right or wrong. Chinese or American. Anyone for Worldcom or Enron?

I’ve only been burnt in China by Low ball taking private offers not by accounting irregularities. Most of the China offenses have been pure out and out scams not accounting style issues.

You may have Trump’s America first but please let’s not get reactionary and intolerant on pure speculation on this board. Can we discuss and invest on merit please?

Ant

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I’ve only been burnt in China by Low ball taking private offers not by accounting irregularities. Most of the China offenses have been pure out and out scams not accounting style issues.

You may have Trump’s America first but please let’s not get reactionary and intolerant on pure speculation on this board. Can we discuss and invest on merit please?

Ant, this is not about Trump’s first. We have discussed this many times and long before Trump came along. Jack Ma is a thief. He stole from Yahoo and to think he wouldn’t do the same to any of his other shareholders is just plain foolishness. If you choose to invest in Chinese companies that is fine but to call the rest of us that choose not to as reactionary or intolerant is just plain wrong. There are many reasons not to invest in Chinese companies and only one of them is that you do not hold anything in the company itself but in a shell of the company.

Andy
Who is not intolerant but the risk in Chinese companies is just to much for me, and I have a high risk tolerance.

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Discuss all you want, no problem with that, this is a public forum. BTW - this has nothing to do with Trump, it’s simply a matter of reporting and audit standards, government oversight, and greed.

As far as I can tell, your thesis is based on the company’s own financial reporting of their finances. What confidence do you have that their accounting is accurate and consistent with the principles that public US companies are subject to?

When Amazon, Apple, GE or any large US corporation reports their earnings, I have some degree of assurance that they followed GAAP principles, and that their books were audited by an independent accounting firm. Even so, there is still some wiggle room and accounting tricks that can mislead, but at least it gets a lot of accounting and audit scrutiny. Obviously that does not guarantee they haven’t committed fraud, but it’s much more reassuring than what I have seen from Chinese companies.

You highlighted Enron and Worldcom, examples of American scandals 15 years ago. They certainly lied and cheated. But they did get caught eventually, and stricter laws were enacted to prevent others from doing the same. What sort of laws has China enacted to prevent such scandals? China’s state run agencies are far from being above such chicanery, and notorious for doing anything to make China look good. You may have a compelling “thesis”, and BABA may well be squeaky clean, but how can we really know?

Sorry if you disapprove, I’m simply stating my opinion, which apparently you don’t agree with. I respect yours, I hope you respect mine.

-----
Invest wisely my friends

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Ok I’m not going to bother with a full rebuttal beyond pointing out that 1) AliBaba produce GAAP and Non-GAAP reports and receive their audit services from PWC and comply with US SEC ADR regulations in line with US companies and other non-Chinese foreign companies with ADR listings 2) Jack Ma hasn’t done anything more than what Zuckerberg did to Saverin and AliBaba has no fraudulent history or claims as such against it. The SEC have asked for more details with which to determine whether there is any issues in the way e-commerce values are treated which is a far cry from illegal or criminal activities.

There is clear discriminatory prejudice for good reasons (cautionary investing protection measures) - which I respect and accept and perhaps less good reasons on this board and although there has been interest in some of the China companies I have brought forward as well as overlapping China ADR investment holdings in common with members of this board, I won’t bother with any further China based investments discussion. We just don’t seem to get past the - well they are Chinese so you can’t trust the financials/company/individuals/regulatory landscape, which makes any investment merit debate pointless given that over-arching standpoint - which is a shame as there many Saul like US LISTED China stocks that fit this board’s profile (BABA, NTES, TAL, CTRP etc) and those that are prepared to consider and accept the China risks aren’t allowed a discussion without the China slap down - which is doubly unfortunate for those of us Fools that are based over here in Asia and travel to and deal with China on a daily/weekly basis and consider it part of our operating, living and investing horizons.

So whilst i accept and respect board member who for risk purposes are not prepared to invest in US listed China stocks, I don’t believe those that are open to this risk are afforded the same acceptance and respect and openness and tolerance which is a shame although I also do respect’s Saul’s final word on this in the charter or principles of the board which might reasonably disqualify China companies from discussion based on the board’s focus and purpose.

Xin Nian Kuai Le!
Ant

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Hey Ant!

Count me as one of those intrigued by Alibaba, but I have to push back a little on this:

Jack Ma hasn’t done anything more than what Zuckerberg did to Saverin and AliBaba has no fraudulent history or claims as such against it.

Mark Zuckerberg was a 20 year old college dropout when he diluted Saverin’s stake in Facebook. And that was after Saverin refused to join Zuckerberg on the west coast, froze a fledgling Facebook’s bank account, and started working on another startup. I’m not at all saying Zuck was right in how he handled it, but sometimes 20 year old kids will handle things inappropriately. Facebook was years away from being publicly traded at the time.

Alibaba was a huge, multi-billion dollar company when it spun off Alipay because China made up rules on the fly about not wanting foreign investors involved in payments companies. Yahoo claimed they didn’t even know about the spinoff for 6 months!

So I totally get the reluctance on board members’ parts to stay away from Chinese companies in general and Alibaba in particular. They totally screwed Yahoo (and I believe Softbank) in that transaction with the help of the Chinese government. To compare that to how two 20-year olds handled their business affairs in the heady first days of a startup seems like stretch to me.

Matt
Long FB
MasterCard (MA), Nestle (NSRGY), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

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This is Jim Chanos’ bearish view on BABA.

http://www.cnbc.com/2016/10/25/short-seller-chanos-lays-out-…

I have no position but found this interesting.

Rob

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Xin Nian Kuai Le!
Ant

¡Feliz Año Nuevo!

Denny

Ant:

Your post reminds me of Kandi, one of my more successful investments.

October 31, 2010
Investing: Kandi Technologies, Corp. (KNDI)

I have said often that I don’t like the idea of investing directly in China. This morning I ran across a series of four write-ups on Kandi Technologies, Corp. (KNDI) that has me reevaluating not only my not-to-invest in China policy but my view of the future of electric vehicles as well. This is really exciting!

http://softwaretimes.com/files/investing+kandi+technologi.ht…

Whenever or wherever there is money involved one has to me careful not to be ripped off. I’ve been ripped off enough times to know it intimately. The people doing the ripping off have an international flavor to them including the wily Chinese and the honest Swiss, Argentinians, Venezuelans, Americans, and a maybe some others I don’t recall just now.

Don’t throw out the baby with the bath water.

Denny Schlesinger

Ant, you’re defending BABA against my (and perhaps others’) cautious bias. Please don’t let me deter you from fleshing out your thesis on BABA. If you explain what makes it a compelling investment for you I’m sure you’ll get some constructive feedback.

-----
Invest wisely my friends

1 Like

Guys - As mentioned I will refrain from bringing further China investment discussions to the board but for those that were interested specifically in the BABA case, I am consolidating the discussion around the BABA thesis into this thread.

In another thread I made the point to Bear that I believe an analog for BABA’s valuation could be viewed by considering that:-

For BABA’s 260B you are getting the equivalent of Amazon (400BN), Youtube (est. valuation 100BN) via its ownership of YuKou, eBay (40BN) via its AliExpress & Taobao auction sites, PayPal (50BN) via its earnings stake in AntFinancial/AliPay.
Then factor in China never built an offline retailing commerce equivalent of WalMart etc - but instead of a belated nationwide physical retailing build out, Chinese are going straight to online commerce so BABA is actually also the equivalent of US’ WalMart to a degree.
Then factor in China has 3x the population of the US…
Then factor in China is growing 2x the rate of the US economy…
Then factor in its assets in India - Snapdeal & PayTM stakes (another 1Bn people) and SE Asia - Lazarda (another 1Bn people)…
Then you have all their strategic initiatives like AliHealth thrown in for free.

I believe whether on the basis of a direct comparison with Amazon or on a like for like sum of the parts, BABA is undervalued. As a result, in full disclosure:- I bought in last year originally in the dip at $73, topped up after earnings at $91 and added again with the recent sell off at $89.

On the Alipay front, firstly there have been eventual disclosures on this story (although we will never know the basis of the he said/she said claims) and agreement reached between AliBaba (and its stakeholders Yahoo and SoftBank) and the Ant Financial organisation.

I think BABA is left with a stake in an amazing appreciating asset. Free access to payment transaction settlements from Alipay (or at cost), the original cash payments to AliBaba and the opportunity to take a substantial economic ownership stake of 37.5% of equity or profit share from Ant Financial in perpetuity at the point of an IPO or liquidity event. I’m not convinced Alipay could have grown the way it has under direct embedded control of AliBaba in the same way as Paypal was able to grow value under eBay.

I understand that regulatory landscapes are prone to change - sometimes suddenly and don’t offer the transparency that I might be used to or prefer to see. This produces uncertainty and risk - and whilst China is not where we would want it to be I don’t consider the US a paragon of fortitude in this respect and certainly under Trump we are seeing unconventional and uncertain policy directions.

As a Brit living in Singapore - I consider that I am taking a risk whether it is in the UK, US, Singapore or HK/China although clearly the risk reward situations vary. Whilst my highest RoI plays I have ever experienced were with ARM holdings (exiting with 10, 20 and 40 baggers) in the UK and with CEVA in the US (currently a 7 bagger), after that my next 3 highest RoI performers have all come from China investments (CTRP, TAL and NTES). I expect BABA to catch and overtake my other China investment returns and be one of the cornerstones of my future wealth. Amazon and Alibaba (and Shopify) look to have a business model that will grow, prosper and strengthen for decades ahead. I believe i can get into BABA with greater runway and higher potential returns than Amazon at this point of time - yes perhaps with more risk.

Ant

FWIW - If you want to see the hard details on Alipay - it is disclosed in the 2016 financial statements…

The key details are on page 121 of the report.
http://www.alibabagroup.com/en/ir/pdf/agm160524_ar.pdf

2014 Restructuring of Our Relationship with Ant Financial Services and Alipay
On August 12, 2014, we entered into a share and asset purchase agreement, or the 2014 SAPA, and entered into or amended certain ancillary agreements including an amendment and restatement of the Alipay IPLA. Pursuant to these agreements, we restructured our relationships with Ant Financial Services and Alipay, its wholly- owned subsidiary, and terminated the 2011 framework agreement.
Pursuant to the 2014 SAPA, we sold the SME loan business and related services to Ant Financial Services for an aggregate cash consideration of RMB3,219 million. In calendar years 2015 to 2017, we will receive an annual fee equal to 2.5% of the average daily book balance of the SME loans. In calendar years 2018 to 2021, we will receive an annual fee equal to the amount paid for the calendar year 2017, or collectively the SME annual fee.
In connection with the 2014 SAPA, we also entered into an amended intellectual property license agreement with Alipay, or amended Alipay IPLA, pursuant to which we license certain intellectual property and provide certain software technology services to Alipay and the SME loan business. Under the amended Alipay IPLA, we receive royalty streams and a service fee, or collectively the profit share payments, paid at least annually, amounting to the sum of an expense reimbursement plus 37.5% of the consolidated pre-tax income of Ant Financial Services, subject to certain adjustments.
Pursuant to the terms of the 2014 SAPA, in the event of an initial public offering of Ant Financial Services or Alipay at an implied equity value exceeding US$25 billion which results in gross proceeds of at least US$2.0 billion (a ‘‘Qualified IPO’’), if our total ownership of equity interests in Ant Financial Services has not reached 33%, we would be entitled at our election to either receive a one-time payment equal to 37.5% of the equity value of Ant Financial Services as determined immediately prior to such Qualified IPO. There is no cap on the maximum value of such liquidity event payment. If we acquire equity interests in Ant Financial Services in an aggregate amount less than 33%, the percentage of Ant Financial Services’ equity value used to calculate such liquidity event payment will be reduced proportionately.
In lieu of receiving such liquidity event payment, we may elect to continue to receive the profit share payment in perpetuity, subject to the receipt of regulatory approvals. In connection with a Qualified IPO and if we so elect, Ant Financial Services must use its commercially reasonable efforts to obtain the required approvals for continued payments under the amended Alipay IPLA. If such approvals are not obtained, Ant Financial Services will pay the liquidity event payment as described above to us.
The 2014 SAPA provides for future potential equity issuances to us by Ant Financial Services. In the event that Ant Financial Services applies for and receives certain PRC regulatory approvals in the future, Ant Financial Services will issue and we will purchase newly issued equity interests in Ant Financial Services up to a 33% equity interest, or such lesser equity interest as may be permitted by the regulatory approvals. If the liquidity event payment described above has not become payable upon a Qualified IPO of Ant Financial Services, our right to acquire equity interests up to the full 33% equity interest will continue after such Qualified IPO. However, the maximum equity interest that we are entitled to acquire will be reduced in proportion to any dilutive equity issuances by Ant Financial Services in and following such Qualified IPO. If we acquire an equity interest in Ant Financial Services pursuant to this arrangement which is below 33%, the liquidity event payment amount and the
121
profit sharing arrangement under the Alipay IPLA will be proportionately reduced based on the amount of equity interests acquired by us.
For additional details of the new and amended agreements, see ‘‘Item 7. Major Shareholders and Related Party Transactions — B. Related Party Transactions — Agreements and Transactions Related to Ant Financial Services and its Subsidiaries.’’

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Still intrigued Ant. So let me ask you two questions:

  1. In China, do you think they’re poised to lead in cloud as Amazon does here? Or are they one of many competitors in China for this service?

This is crucial to me because I think it is only because of the rise of its cloud platform that Amazon is assigned its valuation. If Amazon was still just an e-commerce business, its valuation and growth prospects wouldn’t look nearly as attractive.

All I really know is that Alibaba does have a loud platform. But I think Baidu does too? And I’m sure there are other Chinese vendors competing in this space as well?

  1. MY next question is how bad is its counterfeit problem? How much is this going to hurt the company going forward?

Alibaba got a big lump of coal for Christmas yesterday when the U.S. Office of the Trade Representative added Taobao, its e-Bay-like small seller platform, back onto a list of notorious counterfeit platforms that includes the likes of torrent site Pirate Bay. Alibaba (BABA, -0.66%) was last on the list in 2012.

Not surprisingly, the company complained. “The decision ignores the real work Alibaba has done to protect IP rights holders and assist law enforcement to bring counterfeits to justice,” Alibaba president Michael Evans said. Alibaba says it removed 380 million listings and closed 180,000 stores over the year ending in August.

But the protests ring hollow. From inside China, you can search Taobao and still find hundreds, often thousands, of illegitimate or suspect products from top brands. These results don’t pop up in searches overseas because Alibaba has essentially walled off the Chinese Taobao from its worldwide marketplaces. As much as 90% of New Balance’s 117,000 listings on Taobao are counterfeit or dubious goods, the Boston-based company last estimated. A search for Disney’s Star Wars-branded gear on Thursday finds 102,000 items listed, many suspect, while unlicensed ugly Christmas sweaters featuring professional sports teams abound. I know because I recently bought one—imitation NHL tag and all—off Taobao.

Read more at http://fortune.com/2016/12/22/alibaba-taobao-counterfeit-goo…

I would appreciate your thoughts, Ant. Thanks!

Matt
No position, still intrigued, but cautious
MasterCard (MA), Nestle (NSRGY), PayPal (PYPL), and Verizon (VZ) Ticker Guide
See all my holdings at http://my.fool.com/profile/CMFCochrane/info.aspx

Hi Matt

On the first question I think BABA has an immense lead in cloud in China and is vying for Azure and AWS business around the region. I don’t see another China company operating on its scale. Unfortunately we can’t attach photos in fool posts but basically where I live in Singapore, we have AliBaba Cloud advertising all over Changi airport and other places in Asia - far beyond China. I believe they also operate and collaborate with datacenters around the world outside Chinese borders…

http://www.datacenterdynamics.com/content-tracks/colo-cloud/…

https://www.techinasia.com/alibaba-expands-singapore

On the counterfeiting issue - this is a China issue not an AliBaba issue. AliBaba can try or not try to do anything about it but frankly it is part of the fabric in Asia and China no matter what BABA does. Counterfeiting is endemic in the culture here. That will change the day that cost is no longer a competitive advantage to China. Then they will have to use innovation and ingenuity to compete which is going to be a make or break paradigm shift for the Chinese economy. Again AliBaba is well placed for it as they are just the platform for China and the world to do business on.

From a business point of view, yes it might piss Ma off being on the list and it may not help their efforts with luxury goods manufactures but frankly it hasn’t made a blind bit of difference to their business success.

Ant

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On the first question I think BABA has an immense lead in cloud in China

Ant, I don’t have any question about BABA the company doing well. But I wonder how well the stockholders will do. Alibaba is the very same company which so screwed Yahoo. As I remember (though I may be off), Yahoo owned 40% of the stock, but the CEO of Alibaba gave himself the most promising division as a gift from the company, without even telling Yahoo in advance, in spite of Yahoo’s large ownership stake. If he could do it to a 40% owner, he can do it to you. Just my opinion, and it may be exaggerated. Remember though that MF closed MF Global Gains after most of the Chinese companies it recommended turned out to be frauds and just run to enrich the founders and management. (11 of 13 that I took little positions in turned out to be crooked, and collapsed. Those are tough odds to beat.)

Saul

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