Intrinsic value of Alibaba Group Holding ADR - BABA

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$115.50

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$115.50

 
Intrinsic value

$546.82

 
Up/down potential

+373%

 
Rating

str. buy

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of BABA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 283.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  32.73
  54.20
  49.28
  44.85
  40.87
  37.28
  34.05
  31.15
  28.53
  26.18
  24.06
  22.15
  20.44
  18.90
  17.51
  16.26
  15.13
  14.12
  13.21
  12.38
  11.65
  10.98
  10.38
  9.85
  9.36
  8.92
  8.53
  8.18
  7.86
  7.57
  7.32
Revenue, $m
  14,633
  22,564
  33,684
  48,791
  68,731
  94,354
  126,483
  165,879
  213,208
  269,024
  333,754
  407,697
  491,028
  583,811
  686,012
  797,526
  918,191
  1,047,811
  1,186,176
  1,333,080
  1,488,333
  1,651,775
  1,823,285
  2,002,789
  2,190,262
  2,385,732
  2,589,284
  2,801,057
  3,021,248
  3,250,103
  3,487,926
Variable operating expenses, $m
 
  15,200
  22,108
  31,494
  43,882
  59,801
  79,763
  104,238
  133,643
  168,320
  208,535
  253,293
  305,065
  362,709
  426,205
  495,486
  570,452
  650,982
  736,945
  828,213
  924,669
  1,026,212
  1,132,768
  1,244,290
  1,360,762
  1,482,203
  1,608,666
  1,740,236
  1,877,036
  2,019,219
  2,166,973
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  10,553
  15,200
  22,108
  31,494
  43,882
  59,801
  79,763
  104,238
  133,643
  168,320
  208,535
  253,293
  305,065
  362,709
  426,205
  495,486
  570,452
  650,982
  736,945
  828,213
  924,669
  1,026,212
  1,132,768
  1,244,290
  1,360,762
  1,482,203
  1,608,666
  1,740,236
  1,877,036
  2,019,219
  2,166,973
Operating income, $m
  4,080
  7,364
  11,576
  17,297
  24,849
  34,553
  46,721
  61,641
  79,565
  100,704
  125,219
  154,404
  185,963
  221,102
  259,808
  302,041
  347,739
  396,829
  449,230
  504,866
  563,664
  625,563
  690,518
  758,500
  829,500
  903,528
  980,618
  1,060,821
  1,144,212
  1,230,884
  1,320,953
EBITDA, $m
  5,049
  8,763
  13,081
  18,948
  26,692
  36,642
  49,120
  64,419
  82,800
  104,476
  129,614
  158,330
  190,691
  226,724
  266,414
  309,720
  356,581
  406,919
  460,653
  517,703
  577,996
  641,469
  708,075
  777,786
  850,591
  926,502
  1,005,552
  1,087,794
  1,173,305
  1,262,182
  1,354,540
Interest expense (income), $m
  226
  270
  661
  1,210
  1,956
  2,940
  4,205
  5,791
  7,736
  10,072
  12,827
  16,022
  19,672
  23,785
  28,365
  33,410
  38,914
  44,871
  51,269
  58,099
  65,350
  73,013
  81,081
  89,547
  98,408
  107,662
  117,310
  127,358
  137,811
  148,680
  159,977
Earnings before tax, $m
  11,786
  7,095
  10,914
  16,087
  22,893
  31,612
  42,516
  55,850
  71,830
  90,632
  112,392
  138,382
  166,291
  197,316
  231,443
  268,630
  308,824
  351,958
  397,962
  446,767
  498,314
  552,549
  609,437
  668,953
  731,092
  795,867
  863,308
  933,463
  1,006,401
  1,082,205
  1,160,976
Tax expense, $m
  1,222
  1,916
  2,947
  4,343
  6,181
  8,535
  11,479
  15,079
  19,394
  24,471
  30,346
  37,363
  44,899
  53,275
  62,489
  72,530
  83,383
  95,029
  107,450
  120,627
  134,545
  149,188
  164,548
  180,617
  197,395
  214,884
  233,093
  252,035
  271,728
  292,195
  313,464
Net income, $m
  10,338
  5,179
  7,967
  11,743
  16,712
  23,077
  31,037
  40,770
  52,436
  66,161
  82,046
  101,019
  121,392
  144,041
  168,953
  196,100
  225,442
  256,929
  290,512
  326,140
  363,769
  403,361
  444,889
  488,335
  533,697
  580,983
  630,215
  681,428
  734,673
  790,009
  847,513

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  16,738
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  52,696
  55,440
  82,761
  119,881
  168,872
  231,828
  310,770
  407,566
  523,853
  660,992
  820,034
  1,001,713
  1,206,458
  1,434,424
  1,685,534
  1,959,524
  2,255,997
  2,574,473
  2,914,437
  3,275,380
  3,656,837
  4,058,415
  4,479,817
  4,920,858
  5,381,478
  5,861,749
  6,361,877
  6,882,205
  7,423,213
  7,985,512
  8,569,842
Adjusted assets (=assets-cash), $m
  35,958
  55,440
  82,761
  119,881
  168,872
  231,828
  310,770
  407,566
  523,853
  660,992
  820,034
  1,001,713
  1,206,458
  1,434,424
  1,685,534
  1,959,524
  2,255,997
  2,574,473
  2,914,437
  3,275,380
  3,656,837
  4,058,415
  4,479,817
  4,920,858
  5,381,478
  5,861,749
  6,361,877
  6,882,205
  7,423,213
  7,985,512
  8,569,842
Revenue / Adjusted assets
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
  0.407
Average production assets, $m
  1,525
  2,347
  3,503
  5,074
  7,148
  9,813
  13,154
  17,251
  22,174
  27,978
  34,710
  42,400
  51,067
  60,716
  71,345
  82,943
  95,492
  108,972
  123,362
  138,640
  154,787
  171,785
  189,622
  208,290
  227,787
  248,116
  269,286
  291,310
  314,210
  338,011
  362,744
Working capital, $m
  11,862
  -6,566
  -9,802
  -14,198
  -20,001
  -27,457
  -36,807
  -48,271
  -62,044
  -78,286
  -97,122
  -118,640
  -142,889
  -169,889
  -199,630
  -232,080
  -267,194
  -304,913
  -345,177
  -387,926
  -433,105
  -480,666
  -530,576
  -582,812
  -637,366
  -694,248
  -753,482
  -815,108
  -879,183
  -945,780
  -1,014,986
Total debt, $m
  8,328
  18,898
  34,580
  55,887
  84,008
  120,144
  165,457
  221,018
  287,767
  366,485
  457,775
  562,058
  679,582
  810,434
  954,572
  1,111,842
  1,282,017
  1,464,823
  1,659,962
  1,867,143
  2,086,099
  2,316,605
  2,558,490
  2,811,648
  3,076,044
  3,351,719
  3,638,792
  3,937,461
  4,247,999
  4,570,759
  4,906,164
Total liabilities, $m
  21,253
  31,823
  47,505
  68,812
  96,933
  133,069
  178,382
  233,943
  300,692
  379,410
  470,700
  574,983
  692,507
  823,359
  967,497
  1,124,767
  1,294,942
  1,477,748
  1,672,887
  1,880,068
  2,099,024
  2,329,530
  2,571,415
  2,824,573
  3,088,969
  3,364,644
  3,651,717
  3,950,386
  4,260,924
  4,583,684
  4,919,089
Total equity, $m
  31,443
  23,617
  35,256
  51,069
  71,940
  98,759
  132,388
  173,623
  223,161
  281,583
  349,335
  426,730
  513,951
  611,065
  718,038
  834,757
  961,055
  1,096,726
  1,241,550
  1,395,312
  1,557,812
  1,728,885
  1,908,402
  2,096,286
  2,292,510
  2,497,105
  2,710,159
  2,931,819
  3,162,289
  3,401,828
  3,650,753
Total liabilities and equity, $m
  52,696
  55,440
  82,761
  119,881
  168,873
  231,828
  310,770
  407,566
  523,853
  660,993
  820,035
  1,001,713
  1,206,458
  1,434,424
  1,685,535
  1,959,524
  2,255,997
  2,574,474
  2,914,437
  3,275,380
  3,656,836
  4,058,415
  4,479,817
  4,920,859
  5,381,479
  5,861,749
  6,361,876
  6,882,205
  7,423,213
  7,985,512
  8,569,842
Debt-to-equity ratio
  0.265
  0.800
  0.980
  1.090
  1.170
  1.220
  1.250
  1.270
  1.290
  1.300
  1.310
  1.320
  1.320
  1.330
  1.330
  1.330
  1.330
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
  1.340
Adjusted equity ratio
  0.409
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426
  0.426

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10,338
  5,179
  7,967
  11,743
  16,712
  23,077
  31,037
  40,770
  52,436
  66,161
  82,046
  101,019
  121,392
  144,041
  168,953
  196,100
  225,442
  256,929
  290,512
  326,140
  363,769
  403,361
  444,889
  488,335
  533,697
  580,983
  630,215
  681,428
  734,673
  790,009
  847,513
Depreciation, amort., depletion, $m
  969
  1,398
  1,506
  1,651
  1,843
  2,090
  2,399
  2,779
  3,234
  3,772
  4,395
  3,926
  4,728
  5,622
  6,606
  7,680
  8,842
  10,090
  11,422
  12,837
  14,332
  15,906
  17,558
  19,286
  21,091
  22,974
  24,934
  26,973
  29,093
  31,297
  33,587
Funds from operations, $m
  9,350
  6,578
  9,473
  13,394
  18,555
  25,167
  33,436
  43,549
  55,670
  69,933
  86,441
  104,945
  126,121
  149,663
  175,559
  203,780
  234,284
  267,019
  301,934
  338,977
  378,101
  419,267
  462,446
  507,621
  554,788
  603,956
  655,148
  708,401
  763,766
  821,307
  881,100
Change in working capital, $m
  1,127
  -2,308
  -3,236
  -4,396
  -5,802
  -7,456
  -9,350
  -11,464
  -13,773
  -16,242
  -18,836
  -21,517
  -24,249
  -27,000
  -29,741
  -32,451
  -35,113
  -37,719
  -40,264
  -42,749
  -45,179
  -47,562
  -49,910
  -52,236
  -54,554
  -56,882
  -59,234
  -61,626
  -64,075
  -66,597
  -69,206
Cash from operations, $m
  8,223
  8,138
  12,709
  17,791
  24,357
  32,623
  42,785
  55,013
  69,443
  86,176
  105,278
  126,462
  150,370
  176,663
  205,300
  236,231
  269,397
  304,739
  342,199
  381,726
  423,280
  466,829
  512,356
  559,857
  609,343
  660,838
  714,382
  770,028
  827,841
  887,904
  950,307
Maintenance CAPEX, $m
  0
  -141
  -217
  -324
  -470
  -662
  -909
  -1,218
  -1,597
  -2,053
  -2,591
  -3,214
  -3,926
  -4,728
  -5,622
  -6,606
  -7,680
  -8,842
  -10,090
  -11,422
  -12,837
  -14,332
  -15,906
  -17,558
  -19,286
  -21,091
  -22,974
  -24,934
  -26,973
  -29,093
  -31,297
New CAPEX, $m
  -1,569
  -822
  -1,156
  -1,571
  -2,074
  -2,665
  -3,341
  -4,097
  -4,922
  -5,805
  -6,732
  -7,690
  -8,666
  -9,649
  -10,629
  -11,597
  -12,549
  -13,480
  -14,390
  -15,278
  -16,146
  -16,998
  -17,837
  -18,668
  -19,497
  -20,329
  -21,169
  -22,024
  -22,900
  -23,801
  -24,734
Cash from investing activities, $m
  -6,196
  -963
  -1,373
  -1,895
  -2,544
  -3,327
  -4,250
  -5,315
  -6,519
  -7,858
  -9,323
  -10,904
  -12,592
  -14,377
  -16,251
  -18,203
  -20,229
  -22,322
  -24,480
  -26,700
  -28,983
  -31,330
  -33,743
  -36,226
  -38,783
  -41,420
  -44,143
  -46,958
  -49,873
  -52,894
  -56,031
Free cash flow, $m
  2,027
  7,175
  11,335
  15,895
  21,814
  29,297
  38,535
  49,698
  62,923
  78,318
  95,955
  115,558
  137,778
  162,285
  189,049
  218,027
  249,168
  282,416
  317,719
  355,026
  394,296
  435,499
  478,613
  523,631
  570,560
  619,418
  670,239
  723,069
  777,969
  835,009
  894,276
Issuance/(repayment) of debt, $m
  358
  11,193
  15,682
  21,307
  28,121
  36,137
  45,313
  55,560
  66,749
  78,718
  91,290
  104,283
  117,524
  130,853
  144,137
  157,270
  170,175
  182,805
  195,139
  207,181
  218,956
  230,506
  241,885
  253,158
  264,396
  275,675
  287,073
  298,669
  310,539
  322,759
  335,406
Issuance/(repurchase) of shares, $m
  -2,764
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -2,292
  11,193
  15,682
  21,307
  28,121
  36,137
  45,313
  55,560
  66,749
  78,718
  91,290
  104,283
  117,524
  130,853
  144,137
  157,270
  170,175
  182,805
  195,139
  207,181
  218,956
  230,506
  241,885
  253,158
  264,396
  275,675
  287,073
  298,669
  310,539
  322,759
  335,406
Total cash flow (excl. dividends), $m
  -199
  18,367
  27,017
  37,202
  49,935
  65,433
  83,848
  105,258
  129,672
  157,036
  187,245
  219,841
  255,301
  293,138
  333,186
  375,297
  419,343
  465,222
  512,858
  562,207
  613,253
  666,005
  720,497
  776,789
  834,956
  895,093
  957,312
  1,021,738
  1,088,507
  1,157,769
  1,229,681
Retained Cash Flow (-), $m
  -10,307
  -8,289
  -11,639
  -15,813
  -20,870
  -26,819
  -33,629
  -41,235
  -49,538
  -58,421
  -67,752
  -77,395
  -87,221
  -97,114
  -106,973
  -116,720
  -126,297
  -135,671
  -144,825
  -153,762
  -162,501
  -171,072
  -179,517
  -187,884
  -196,224
  -204,595
  -213,054
  -221,660
  -230,469
  -239,539
  -248,925
Prev. year cash balance distribution, $m
 
  16,115
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  26,193
  15,378
  21,389
  29,064
  38,614
  50,219
  64,024
  80,134
  98,614
  119,493
  142,446
  168,080
  196,024
  226,213
  258,578
  293,046
  329,551
  368,033
  408,445
  450,752
  494,932
  540,980
  588,905
  638,731
  690,498
  744,258
  800,078
  858,038
  918,229
  980,757
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  25,113
  14,078
  18,614
  23,932
  29,931
  36,446
  43,253
  50,086
  56,649
  62,646
  67,646
  71,726
  74,532
  75,944
  75,914
  74,469
  71,705
  67,777
  62,889
  57,277
  51,192
  44,887
  38,597
  32,532
  26,861
  21,714
  17,172
  13,275
  10,023
  7,385
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Alibaba Group Holding Limited, through its subsidiaries, operates as an online and mobile commerce company in the People's Republic of China and internationally. It operates Taobao Marketplace, an online shopping destination; Tmall, a third-party platform for brands and retailers; Juhuasuan, a sales and marketing platform for flash sales; Alibaba.com, an online wholesale marketplace; Alitrip, an online travel booking platform; 1688.com, an online wholesale marketplace; and AliExpress, a consumer marketplace. The company also provides pay-for-performance and display marketing services through its Alimama marketing technology platform; Taobao Ad Network and Exchange (TANX), a real-time bidding online marketing exchange in China; and data management platform through TANX for marketers to execute their campaigns with proprietary and tailored data. In addition, it offers cloud computing services, including elastic computing, database, storage and content delivery network, large scale computing, security, and management and application services through its Alibaba Cloud Computing platform; Web hosting and domain name registration services; payment and escrow services; and develops and operates mobile Web browsers. The company provides its solutions primarily for businesses. The company has a strategic partnership with Mattel, Inc. Alibaba Group Holding Limited was founded in 1999 and is based in Hangzhou, the People's Republic of China.

FINANCIAL RATIOS  of  Alibaba Group Holding ADR (BABA)

Valuation Ratios
P/E Ratio 27.6
Price to Sales 19.5
Price to Book 9.1
Price to Tangible Book
Price to Cash Flow 34.7
Price to Free Cash Flow 42.9
Growth Rates
Sales Growth Rate 32.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 40.7%
Cap. Spend. - 3 Yr. Gr. Rate 34.1%
Financial Strength
Quick Ratio 27
Current Ratio 0
LT Debt to Equity 24.5%
Total Debt to Equity 26.5%
Interest Coverage 53
Management Effectiveness
Return On Assets 23.5%
Ret/ On Assets - 3 Yr. Avg. 21.7%
Return On Total Capital 30.2%
Ret/ On T. Cap. - 3 Yr. Avg. 28.3%
Return On Equity 39.3%
Return On Equity - 3 Yr. Avg. 52.7%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 66%
Gross Margin - 3 Yr. Avg. 69.8%
EBITDA Margin 88.7%
EBITDA Margin - 3 Yr. Avg. 64.9%
Operating Margin 27.9%
Oper. Margin - 3 Yr. Avg. 35%
Pre-Tax Margin 80.5%
Pre-Tax Margin - 3 Yr. Avg. 58%
Net Profit Margin 70.6%
Net Profit Margin - 3 Yr. Avg. 49%
Effective Tax Rate 10.4%
Eff/ Tax Rate - 3 Yr. Avg. 14.1%
Payout Ratio 0%

BABA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BABA stock intrinsic value calculation we used $14633 million for the last fiscal year's total revenue generated by Alibaba Group Holding ADR. The default revenue input number comes from 2016 income statement of Alibaba Group Holding ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our BABA stock valuation model: a) initial revenue growth rate of 54.2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for BABA is calculated based on our internal credit rating of Alibaba Group Holding ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Alibaba Group Holding ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of BABA stock the variable cost ratio is equal to 70.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for BABA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Alibaba Group Holding ADR.

Corporate tax rate of 27% is the nominal tax rate for Alibaba Group Holding ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the BABA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for BABA are equal to 10.4%.

Life of production assets of 10.8 years is the average useful life of capital assets used in Alibaba Group Holding ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for BABA is equal to -29.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $31443 million for Alibaba Group Holding ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 2450.71 million for Alibaba Group Holding ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Alibaba Group Holding ADR at the current share price and the inputted number of shares is $283.1 billion.


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Stock chart of BABA Financial statements of BABA
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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