Alibaba Group Holding Ltd.NYSE: BABA

Vivek Vinayak Patrick Leake

Company History 1999: Alibaba is founded by 18 founders, including Jack Ma

2000: Raises US $25 MM from Softbank, GS, Fidelity, etc.

2002: Becomes profitable

2003: Taobao created C2C (eBay and Amazon)

2004: Alipay is launched – online payment system (PayPal)

2005: Yahoo invests $1 billion in cash for 40% stake in Alibaba

2009: Alibaba Cloud Computing is established

2010: Taobao Mall, or Tmall launches (Amazon).

2014: Alibaba IPO – largest global IPO

How big is Alibaba? “In 2013, two of Alibaba’s websites handled $240 billion in sales.” 2x

Amazon, 3x eBay Alibaba accounts for 60% of packages delivered in China

80% of China’s e-commerce

“Alibaba’s Taobao is one of the 20 most-visited websites globally.” Anticipated to handle $1 trillion a year in transactions in 2018

Revenue Sources Marketing services to merchants on its marketplaces:

◦ Alibaba’s online platform bid for specific keywords, which upon being typed in a browser, display product listings.

◦ Alibaba charges the sellers on a cost-per-click basis and offers this service on its own platform, as well as third-party affiliates.

◦ The company also charges sellers on a cost-per-thousand impressions basis in exchange for an attractive display position on its platform (one of its marketplaces) or with third-party affiliates.

Transaction fees; primarily from Tmall and Juhuasuan◦ Sellers pay a certain transaction fee to Alibaba for goods that are sold through Alibaba. This fee typically ranges

between 0.3% to 5% of gross merchandise volume.

Alibaba offers premium subscriptions and value-added services.◦ Cloud services, Alipay, Subscription Video & Music, etc……

Business SegmentationSegment Descriptions Revenue Sources Rev. Contr.China e-commerce retail 78%

Taobao Marketplace Largest C2C online and mobile shopping marketplace in China. eBay and Amazon.

P4P or display marketing fees; subscriptions fees for storefront software

Tmall Largest B2C online and mobile platform for brands and retailers in China. Amazon.

P4P or display marketing fee; commissions based on percentage of MV; annual upfront services fees

Juhuasuan Daily deal sites that leverages Taobao Marketplace. Groupon.

Placement fees for promotional slots; commissions based on percentage of GMV

China e-commerce wholesale 5%

1688.com B2B, online wholesale marketplace in China. Fees from memberships and value-added services; P4P and keyword bidding marketing fees

Int’l e-commerce retail 7%

Alibaba.com Leading global wholesale platform focusing on export trades between suppliers in China and buyers globally

Fees from membership and value-added services; P4P marketing fees

Investment Thesis

Ridiculous Growth & aggressive management

Great fundamentals & balance sheet for high-growth company

China’s growing middle class in a growing economy

Recommendation

Purchase shares before earnings report (1/29)

Hold period: 6 to 12 months

Exit: If it trades below IPO price ($92) – Political and interest rate risk

Sell: $120

Profit?

Price ChartJan 21. Closing Price: 103.2952 week Range: 82.81 – 120.00

Competitor Comparison

BABA AMZN BIDU EBAYMarket Cap 248.67B 134.01B 77.29B 66.69BRevenues 10.25B 85.25B 7.20B 17.51BNet Income 4.71B -215.00M 2.06B -127.00MP/E 50.2 N/A 37.55 N/ARev. Growth 54% 20% 52% 12%

China Growth Potential Online Shipping RMB 128 Million (2008) to RMB 1.9 Trillion (2013) to RMB 5.6 Trillion (2017)

Consumption is 36% of GDP (US is 67%)

Growing mobile internet penetration, smartphone usae and tablets, and improving wireless telecommunication infrastructure in China.

Food and beverages, health goods, and medical services are under-penetrated in online retailing.

Alibaba’s Chinese Dominance

China’s E-commerce PotentialChina US

Consumption % of GDP 36% 67%

Internet Penetration 46% 82%

Online Shopper Penetration 49% 64%