Intrinsic value of Alibaba Group Holding ADR - BABA

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$142.27

  Intrinsic Value

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  Value-price divergence*

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$142.27

 
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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 2017), $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 349.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  56.48
  54.10
  49.19
  44.77
  40.79
  37.21
  33.99
  31.09
  28.48
  26.14
  24.02
  22.12
  20.41
  18.87
  17.48
  16.23
  15.11
  14.10
  13.19
  12.37
  11.63
  10.97
  10.37
  9.84
  9.35
  8.92
  8.52
  8.17
  7.86
  7.57
  7.31
Revenue, $m
  22,898
  155,861
  232,530
  336,635
  473,962
  650,345
  871,417
  1,142,373
  1,467,771
  1,851,387
  2,296,133
  2,804,040
  3,376,292
  4,013,306
  4,714,855
  5,480,194
  6,308,210
  7,197,563
  8,146,813
  9,154,545
  10,219,464
  11,340,479
  12,516,767
  13,747,819
  15,033,475
  16,373,939
  17,769,798
  19,222,015
  20,731,934
  22,301,266
  23,932,084
Variable operating expenses, $m
 
  104,998
  152,630
  217,309
  302,627
  412,209
  549,556
  717,895
  920,058
  1,158,390
  1,434,701
  1,742,088
  2,097,615
  2,493,378
  2,929,234
  3,404,722
  3,919,150
  4,471,685
  5,061,433
  5,687,514
  6,349,125
  7,045,586
  7,776,388
  8,541,213
  9,339,962
  10,172,763
  11,039,978
  11,942,208
  12,880,287
  13,855,278
  14,868,469
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
  15,945
  104,998
  152,630
  217,309
  302,627
  412,209
  549,556
  717,895
  920,058
  1,158,390
  1,434,701
  1,742,088
  2,097,615
  2,493,378
  2,929,234
  3,404,722
  3,919,150
  4,471,685
  5,061,433
  5,687,514
  6,349,125
  7,045,586
  7,776,388
  8,541,213
  9,339,962
  10,172,763
  11,039,978
  11,942,208
  12,880,287
  13,855,278
  14,868,469
Operating income, $m
  6,952
  50,864
  79,900
  119,327
  171,336
  238,136
  321,861
  424,478
  547,713
  692,997
  861,432
  1,061,953
  1,278,677
  1,519,929
  1,785,621
  2,075,472
  2,389,060
  2,725,878
  3,085,380
  3,467,031
  3,870,339
  4,294,893
  4,740,379
  5,206,606
  5,693,513
  6,201,177
  6,729,819
  7,279,807
  7,851,646
  8,445,988
  9,063,615
EBITDA, $m
  6,952
  60,529
  90,303
  130,733
  184,064
  252,563
  338,416
  443,643
  570,012
  718,990
  891,708
  1,088,955
  1,311,190
  1,558,575
  1,831,023
  2,128,244
  2,449,806
  2,795,188
  3,163,831
  3,555,186
  3,968,749
  4,404,097
  4,860,911
  5,338,993
  5,838,280
  6,358,852
  6,900,936
  7,464,907
  8,051,287
  8,660,741
  9,294,072
Interest expense (income), $m
  0
  1,864
  4,567
  8,351
  13,490
  20,268
  28,975
  39,887
  53,262
  69,324
  88,260
  110,213
  135,284
  163,531
  194,975
  229,604
  267,382
  308,254
  352,153
  399,009
  448,752
  501,318
  556,652
  614,715
  675,482
  738,943
  805,110
  874,011
  945,694
  1,020,226
  1,097,690
Earnings before tax, $m
  8,685
  49,000
  75,333
  110,976
  157,846
  217,867
  292,886
  384,590
  494,451
  623,673
  773,173
  951,740
  1,143,393
  1,356,398
  1,590,646
  1,845,868
  2,121,678
  2,417,624
  2,733,227
  3,068,021
  3,421,587
  3,793,575
  4,183,727
  4,591,891
  5,018,031
  5,462,234
  5,924,709
  6,405,795
  6,905,952
  7,425,762
  7,965,925
Tax expense, $m
  1,993
  13,230
  20,340
  29,963
  42,618
  58,824
  79,079
  103,839
  133,502
  168,392
  208,757
  256,970
  308,716
  366,227
  429,474
  498,384
  572,853
  652,758
  737,971
  828,366
  923,829
  1,024,265
  1,129,606
  1,239,811
  1,354,868
  1,474,803
  1,599,672
  1,729,565
  1,864,607
  2,004,956
  2,150,800
Net income, $m
  6,319
  35,770
  54,993
  81,012
  115,227
  159,043
  213,807
  280,751
  360,949
  455,281
  564,416
  694,770
  834,677
  990,171
  1,161,172
  1,347,484
  1,548,825
  1,764,866
  1,995,256
  2,239,656
  2,497,759
  2,769,310
  3,054,121
  3,352,080
  3,663,163
  3,987,430
  4,325,038
  4,676,231
  5,041,345
  5,420,806
  5,815,125

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  21,817
  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
  73,322
  382,952
  571,326
  827,114
  1,164,526
  1,597,899
  2,141,073
  2,806,813
  3,606,317
  4,548,861
  5,641,605
  6,889,534
  8,295,557
  9,860,704
  11,584,410
  13,464,850
  15,499,288
  17,684,429
  20,016,739
  22,492,739
  25,109,248
  27,863,585
  30,753,728
  33,778,426
  36,937,284
  40,230,809
  43,660,437
  47,228,538
  50,938,412
  54,794,265
  58,801,190
Adjusted assets (=assets-cash), $m
  51,505
  382,952
  571,326
  827,114
  1,164,526
  1,597,899
  2,141,073
  2,806,813
  3,606,317
  4,548,861
  5,641,605
  6,889,534
  8,295,557
  9,860,704
  11,584,410
  13,464,850
  15,499,288
  17,684,429
  20,016,739
  22,492,739
  25,109,248
  27,863,585
  30,753,728
  33,778,426
  36,937,284
  40,230,809
  43,660,437
  47,228,538
  50,938,412
  54,794,265
  58,801,190
Revenue / Adjusted assets
  0.445
  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
  1,409
  16,210
  24,183
  35,010
  49,292
  67,636
  90,627
  118,807
  152,648
  192,544
  238,798
  291,620
  351,134
  417,384
  490,345
  569,940
  656,054
  748,547
  847,269
  952,073
  1,062,824
  1,179,410
  1,301,744
  1,429,773
  1,563,481
  1,702,890
  1,848,059
  1,999,090
  2,156,121
  2,319,332
  2,488,937
Working capital, $m
  12,839
  -45,356
  -67,666
  -97,961
  -137,923
  -189,250
  -253,582
  -332,431
  -427,121
  -538,753
  -668,175
  -815,976
  -982,501
  -1,167,872
  -1,372,023
  -1,594,736
  -1,835,689
  -2,094,491
  -2,370,723
  -2,663,973
  -2,973,864
  -3,300,079
  -3,642,379
  -4,000,615
  -4,374,741
  -4,764,816
  -5,171,011
  -5,593,606
  -6,032,993
  -6,489,668
  -6,964,237
Total debt, $m
  13,271
  130,472
  238,599
  385,421
  579,096
  827,852
  1,139,634
  1,521,769
  1,980,684
  2,521,704
  3,148,939
  3,865,250
  4,672,308
  5,570,702
  6,560,109
  7,639,482
  8,807,249
  10,061,520
  11,400,266
  12,821,490
  14,323,366
  15,904,356
  17,563,298
  19,299,475
  21,112,659
  23,003,142
  24,971,749
  27,019,839
  29,149,306
  31,362,566
  33,662,541
Total liabilities, $m
  32,554
  219,814
  327,941
  474,763
  668,438
  917,194
  1,228,976
  1,611,111
  2,070,026
  2,611,046
  3,238,281
  3,954,592
  4,761,650
  5,660,044
  6,649,451
  7,728,824
  8,896,591
  10,150,862
  11,489,608
  12,910,832
  14,412,708
  15,993,698
  17,652,640
  19,388,817
  21,202,001
  23,092,484
  25,061,091
  27,109,181
  29,238,648
  31,451,908
  33,751,883
Total equity, $m
  40,767
  163,137
  243,385
  352,351
  496,088
  680,705
  912,097
  1,195,702
  1,536,291
  1,937,815
  2,403,324
  2,934,941
  3,533,907
  4,200,660
  4,934,959
  5,736,026
  6,602,697
  7,533,567
  8,527,131
  9,581,907
  10,696,540
  11,869,887
  13,101,088
  14,389,609
  15,735,283
  17,138,325
  18,599,346
  20,119,357
  21,699,763
  23,342,357
  25,049,307
Total liabilities and equity, $m
  73,321
  382,951
  571,326
  827,114
  1,164,526
  1,597,899
  2,141,073
  2,806,813
  3,606,317
  4,548,861
  5,641,605
  6,889,533
  8,295,557
  9,860,704
  11,584,410
  13,464,850
  15,499,288
  17,684,429
  20,016,739
  22,492,739
  25,109,248
  27,863,585
  30,753,728
  33,778,426
  36,937,284
  40,230,809
  43,660,437
  47,228,538
  50,938,411
  54,794,265
  58,801,190
Debt-to-equity ratio
  0.326
  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
  0.368
  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
  6,319
  35,770
  54,993
  81,012
  115,227
  159,043
  213,807
  280,751
  360,949
  455,281
  564,416
  694,770
  834,677
  990,171
  1,161,172
  1,347,484
  1,548,825
  1,764,866
  1,995,256
  2,239,656
  2,497,759
  2,769,310
  3,054,121
  3,352,080
  3,663,163
  3,987,430
  4,325,038
  4,676,231
  5,041,345
  5,420,806
  5,815,125
Depreciation, amort., depletion, $m
  0
  9,665
  10,404
  11,406
  12,729
  14,427
  16,556
  19,165
  22,299
  25,993
  30,275
  27,002
  32,512
  38,647
  45,402
  52,772
  60,746
  69,310
  78,451
  88,155
  98,410
  109,205
  120,532
  132,386
  144,767
  157,675
  171,117
  185,101
  199,641
  214,753
  230,457
Funds from operations, $m
  23,242
  45,435
  65,397
  92,419
  127,956
  173,470
  230,362
  299,916
  383,248
  481,274
  594,692
  721,772
  867,190
  1,028,817
  1,206,574
  1,400,256
  1,609,571
  1,834,175
  2,073,706
  2,327,810
  2,596,168
  2,878,514
  3,174,652
  3,484,467
  3,807,930
  4,145,105
  4,496,154
  4,861,332
  5,240,986
  5,635,559
  6,045,583
Change in working capital, $m
  11,621
  -15,923
  -22,310
  -30,295
  -39,962
  -51,327
  -64,332
  -78,848
  -94,691
  -111,632
  -129,421
  -147,801
  -166,525
  -185,371
  -204,151
  -222,714
  -240,953
  -258,802
  -276,232
  -293,250
  -309,891
  -326,215
  -342,300
  -358,236
  -374,126
  -390,075
  -406,195
  -422,595
  -439,386
  -456,676
  -474,568
Cash from operations, $m
  11,621
  56,186
  87,707
  122,713
  167,918
  224,798
  294,694
  378,764
  477,939
  592,906
  724,113
  869,573
  1,033,715
  1,214,188
  1,410,725
  1,622,970
  1,850,524
  2,092,977
  2,349,938
  2,621,060
  2,906,060
  3,204,730
  3,516,952
  3,842,703
  4,182,055
  4,535,181
  4,902,349
  5,283,927
  5,680,372
  6,092,235
  6,520,151
Maintenance CAPEX, $m
  0
  -976
  -1,501
  -2,239
  -3,242
  -4,564
  -6,263
  -8,391
  -11,001
  -14,134
  -17,828
  -22,111
  -27,002
  -32,512
  -38,647
  -45,402
  -52,772
  -60,746
  -69,310
  -78,451
  -88,155
  -98,410
  -109,205
  -120,532
  -132,386
  -144,767
  -157,675
  -171,117
  -185,101
  -199,641
  -214,753
New CAPEX, $m
  0
  -5,668
  -7,973
  -10,827
  -14,282
  -18,344
  -22,991
  -28,179
  -33,841
  -39,896
  -46,254
  -52,822
  -59,514
  -66,250
  -72,961
  -79,595
  -86,114
  -92,493
  -98,722
  -104,804
  -110,752
  -116,586
  -122,334
  -128,029
  -133,708
  -139,408
  -145,169
  -151,031
  -157,032
  -163,211
  -169,605
Cash from investing activities, $m
  -11,337
  -6,644
  -9,474
  -13,066
  -17,524
  -22,908
  -29,254
  -36,570
  -44,842
  -54,030
  -64,082
  -74,933
  -86,516
  -98,762
  -111,608
  -124,997
  -138,886
  -153,239
  -168,032
  -183,255
  -198,907
  -214,996
  -231,539
  -248,561
  -266,094
  -284,175
  -302,844
  -322,148
  -342,133
  -362,852
  -384,358
Free cash flow, $m
  284
  49,542
  78,233
  109,647
  150,394
  201,890
  265,440
  342,194
  433,097
  538,876
  660,031
  794,640
  947,199
  1,115,427
  1,299,117
  1,497,972
  1,711,638
  1,939,739
  2,181,906
  2,437,806
  2,707,153
  2,989,735
  3,285,414
  3,594,142
  3,915,961
  4,251,006
  4,599,505
  4,961,780
  5,338,240
  5,729,383
  6,135,793
Issuance/(repayment) of debt, $m
  0
  77,210
  108,127
  146,822
  193,675
  248,756
  311,782
  382,135
  458,915
  541,021
  627,235
  716,311
  807,057
  898,394
  989,407
  1,079,373
  1,167,768
  1,254,271
  1,338,746
  1,421,224
  1,501,876
  1,580,990
  1,658,942
  1,736,177
  1,813,184
  1,890,483
  1,968,606
  2,048,090
  2,129,467
  2,213,260
  2,299,975
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  4,762
  77,210
  108,127
  146,822
  193,675
  248,756
  311,782
  382,135
  458,915
  541,021
  627,235
  716,311
  807,057
  898,394
  989,407
  1,079,373
  1,167,768
  1,254,271
  1,338,746
  1,421,224
  1,501,876
  1,580,990
  1,658,942
  1,736,177
  1,813,184
  1,890,483
  1,968,606
  2,048,090
  2,129,467
  2,213,260
  2,299,975
Total cash flow (excl. dividends), $m
  5,341
  126,753
  186,360
  256,470
  344,069
  450,646
  577,223
  724,328
  892,012
  1,079,897
  1,287,266
  1,510,951
  1,754,256
  2,013,821
  2,288,524
  2,577,345
  2,879,405
  3,194,009
  3,520,652
  3,859,029
  4,209,029
  4,570,724
  4,944,356
  5,330,319
  5,729,145
  6,141,489
  6,568,111
  7,009,870
  7,467,707
  7,942,643
  8,435,768
Retained Cash Flow (-), $m
  -9,324
  -57,192
  -80,247
  -108,966
  -143,738
  -184,617
  -231,392
  -283,605
  -340,588
  -401,524
  -465,509
  -531,618
  -598,966
  -666,753
  -734,299
  -801,067
  -866,671
  -930,870
  -993,564
  -1,054,776
  -1,114,633
  -1,173,348
  -1,231,201
  -1,288,521
  -1,345,673
  -1,403,042
  -1,461,021
  -1,520,011
  -1,580,406
  -1,642,593
  -1,706,950
Prev. year cash balance distribution, $m
 
  111,392
  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
 
  180,952
  106,112
  147,504
  200,331
  266,029
  345,830
  440,723
  551,423
  678,373
  821,757
  979,333
  1,155,290
  1,347,068
  1,554,226
  1,776,277
  2,012,735
  2,263,139
  2,527,088
  2,804,254
  3,094,397
  3,397,376
  3,713,155
  4,041,797
  4,383,472
  4,738,447
  5,107,090
  5,489,859
  5,887,301
  6,300,050
  6,728,818
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
 
  173,492
  97,142
  128,368
  164,953
  206,205
  250,983
  297,746
  344,653
  389,689
  430,816
  465,071
  493,003
  512,180
  521,781
  521,485
  511,479
  492,422
  465,388
  431,775
  393,203
  351,401
  308,094
  264,904
  223,259
  184,332
  148,999
  117,828
  91,085
  68,771
  50,666
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 55.7
Price to Sales 15.4
Price to Book 8.6
Price to Tangible Book
Price to Cash Flow 30.3
Price to Free Cash Flow 30.3
Growth Rates
Sales Growth Rate 56.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio 10
Current Ratio 0
LT Debt to Equity 27.3%
Total Debt to Equity 32.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 10%
Ret/ On Assets - 3 Yr. Avg. 15.7%
Return On Total Capital 13.5%
Ret/ On T. Cap. - 3 Yr. Avg. 20.3%
Return On Equity 17.5%
Return On Equity - 3 Yr. Avg. 27.6%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 62.4%
Gross Margin - 3 Yr. Avg. 65.7%
EBITDA Margin 37.9%
EBITDA Margin - 3 Yr. Avg. 58.7%
Operating Margin 30.4%
Oper. Margin - 3 Yr. Avg. 29.4%
Pre-Tax Margin 37.9%
Pre-Tax Margin - 3 Yr. Avg. 53.6%
Net Profit Margin 27.6%
Net Profit Margin - 3 Yr. Avg. 43.4%
Effective Tax Rate 22.9%
Eff/ Tax Rate - 3 Yr. Avg. 17.7%
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 $101143 million for the last fiscal year's total revenue generated by Alibaba Group Holding ADR. The default revenue input number comes from 2017 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 54.1% 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 - $217337 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 2457.23 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 $349.6 billion.


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Stock chart of BABA Financial statements of BABA Annual reports 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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