Intrinsic value of Alibaba Group Holding ADR - BABA

Previous Close

$142.93

  Intrinsic Value

$2,025

stock screener

  Rating & Target

str. buy

+999%

Previous close

$142.93

 
Intrinsic value

$2,025

 
Up/down potential

+999%

 
Rating

str. buy

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 0001), $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 194.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  63,348
  97,873
  146,370
  212,375
  299,630
  411,923
  552,921
  726,020
  934,211
  1,179,985
  1,465,273
  1,791,437
  2,159,284
  2,569,121
  3,020,830
  3,513,951
  4,047,777
  4,621,446
  5,234,028
  5,884,601
  6,572,318
  7,296,459
  8,056,476
  8,852,022
  9,682,975
  10,549,450
  11,451,807
  12,390,653
  13,366,840
  14,381,459
Variable operating expenses, $m
  42,202
  63,486
  93,383
  134,075
  187,867
  257,094
  344,017
  450,731
  579,078
  730,595
  903,324
  1,104,400
  1,331,173
  1,583,833
  1,862,306
  2,166,309
  2,495,407
  2,849,067
  3,226,717
  3,627,787
  4,051,757
  4,498,181
  4,966,722
  5,457,167
  5,969,440
  6,503,611
  7,059,904
  7,638,691
  8,240,499
  8,866,000
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
  42,202
  63,486
  93,383
  134,075
  187,867
  257,094
  344,017
  450,731
  579,078
  730,595
  903,324
  1,104,400
  1,331,173
  1,583,833
  1,862,306
  2,166,309
  2,495,407
  2,849,067
  3,226,717
  3,627,787
  4,051,757
  4,498,181
  4,966,722
  5,457,167
  5,969,440
  6,503,611
  7,059,904
  7,638,691
  8,240,499
  8,866,000
Operating income, $m
  21,147
  34,387
  52,986
  78,300
  111,764
  154,829
  208,904
  275,289
  355,133
  449,390
  561,950
  687,037
  828,111
  985,288
  1,158,524
  1,347,642
  1,552,370
  1,772,379
  2,007,312
  2,256,814
  2,520,562
  2,798,278
  3,089,754
  3,394,855
  3,713,535
  4,045,839
  4,391,903
  4,751,962
  5,126,341
  5,515,459
EBITDA, $m
  25,634
  39,605
  59,229
  85,938
  121,246
  166,685
  223,740
  293,785
  378,030
  477,482
  592,924
  724,907
  873,756
  1,039,598
  1,222,382
  1,421,924
  1,637,937
  1,870,073
  2,117,955
  2,381,210
  2,659,495
  2,952,520
  3,260,061
  3,581,980
  3,918,226
  4,268,846
  4,633,986
  5,013,891
  5,408,906
  5,819,472
Interest expense (income), $m
  357
  1,073
  2,841
  5,412
  9,024
  13,939
  20,437
  28,800
  39,301
  52,192
  67,697
  86,000
  107,247
  131,537
  158,932
  189,454
  223,094
  259,818
  299,574
  342,297
  387,918
  436,369
  487,585
  541,514
  598,115
  657,362
  719,246
  783,775
  850,977
  920,896
  993,595
Earnings before tax, $m
  20,074
  31,547
  47,574
  69,277
  97,824
  134,392
  180,103
  235,988
  302,941
  381,693
  475,949
  579,791
  696,574
  826,357
  969,070
  1,124,548
  1,292,552
  1,472,805
  1,665,014
  1,868,896
  2,084,193
  2,310,693
  2,548,239
  2,796,740
  3,056,173
  3,326,593
  3,608,128
  3,900,985
  4,205,445
  4,521,864
Tax expense, $m
  5,420
  8,518
  12,845
  18,705
  26,413
  36,286
  48,628
  63,717
  81,794
  103,057
  128,506
  156,543
  188,075
  223,116
  261,649
  303,628
  348,989
  397,657
  449,554
  504,602
  562,732
  623,887
  688,025
  755,120
  825,167
  898,180
  974,195
  1,053,266
  1,135,470
  1,220,903
Net income, $m
  14,654
  23,029
  34,729
  50,572
  71,412
  98,106
  131,475
  172,271
  221,147
  278,636
  347,443
  423,247
  508,499
  603,240
  707,421
  820,920
  943,563
  1,075,148
  1,215,461
  1,364,294
  1,521,461
  1,686,806
  1,860,215
  2,041,620
  2,231,006
  2,428,413
  2,633,933
  2,847,719
  3,069,975
  3,300,961

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  161,192
  249,042
  372,442
  540,394
  762,418
  1,048,149
  1,406,923
  1,847,379
  2,377,128
  3,002,505
  3,728,430
  4,558,363
  5,494,361
  6,537,205
  7,686,591
  8,941,352
  10,299,687
  11,759,405
  13,318,138
  14,973,541
  16,723,456
  18,566,054
  20,499,938
  22,524,229
  24,638,613
  26,843,384
  29,139,458
  31,528,380
  34,012,315
  36,594,044
Adjusted assets (=assets-cash), $m
  161,192
  249,042
  372,442
  540,394
  762,418
  1,048,149
  1,406,923
  1,847,379
  2,377,128
  3,002,505
  3,728,430
  4,558,363
  5,494,361
  6,537,205
  7,686,591
  8,941,352
  10,299,687
  11,759,405
  13,318,138
  14,973,541
  16,723,456
  18,566,054
  20,499,938
  22,524,229
  24,638,613
  26,843,384
  29,139,458
  31,528,380
  34,012,315
  36,594,044
Revenue / Adjusted assets
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
  0.393
Average production assets, $m
  31,738
  49,035
  73,331
  106,400
  150,115
  206,373
  277,013
  363,736
  468,040
  591,172
  734,102
  897,510
  1,081,801
  1,287,130
  1,513,436
  1,760,490
  2,027,936
  2,315,345
  2,622,248
  2,948,185
  3,292,731
  3,655,526
  4,036,294
  4,434,863
  4,851,170
  5,285,274
  5,737,355
  6,207,717
  6,696,787
  7,205,111
Working capital, $m
  -21,032
  -32,494
  -48,595
  -70,509
  -99,477
  -136,758
  -183,570
  -241,039
  -310,158
  -391,755
  -486,471
  -594,757
  -716,882
  -852,948
  -1,002,916
  -1,166,632
  -1,343,862
  -1,534,320
  -1,737,697
  -1,953,688
  -2,182,010
  -2,422,424
  -2,674,750
  -2,938,871
  -3,214,748
  -3,502,417
  -3,802,000
  -4,113,697
  -4,437,791
  -4,774,645
Total debt, $m
  52,606
  100,220
  167,103
  258,133
  378,470
  533,336
  727,792
  966,519
  1,253,643
  1,592,597
  1,986,049
  2,435,872
  2,943,183
  3,508,404
  4,131,372
  4,811,452
  5,547,670
  6,338,837
  7,183,670
  8,080,899
  9,029,353
  10,028,041
  11,076,206
  12,173,371
  13,319,368
  14,514,354
  15,758,826
  17,053,621
  18,399,914
  19,799,211
Total liabilities, $m
  87,366
  134,981
  201,863
  292,894
  413,231
  568,097
  762,552
  1,001,279
  1,288,403
  1,627,358
  2,020,809
  2,470,633
  2,977,943
  3,543,165
  4,166,133
  4,846,213
  5,582,430
  6,373,597
  7,218,431
  8,115,659
  9,064,113
  10,062,801
  11,110,967
  12,208,132
  13,354,128
  14,549,114
  15,793,586
  17,088,382
  18,434,675
  19,833,972
Total equity, $m
  73,826
  114,061
  170,578
  247,501
  349,188
  480,052
  644,371
  846,099
  1,088,724
  1,375,147
  1,707,621
  2,087,730
  2,516,417
  2,994,040
  3,520,459
  4,095,139
  4,717,257
  5,385,807
  6,099,707
  6,857,882
  7,659,343
  8,503,253
  9,388,972
  10,316,097
  11,284,485
  12,294,270
  13,345,872
  14,439,998
  15,577,640
  16,760,072
Total liabilities and equity, $m
  161,192
  249,042
  372,441
  540,395
  762,419
  1,048,149
  1,406,923
  1,847,378
  2,377,127
  3,002,505
  3,728,430
  4,558,363
  5,494,360
  6,537,205
  7,686,592
  8,941,352
  10,299,687
  11,759,404
  13,318,138
  14,973,541
  16,723,456
  18,566,054
  20,499,939
  22,524,229
  24,638,613
  26,843,384
  29,139,458
  31,528,380
  34,012,315
  36,594,044
Debt-to-equity ratio
  0.710
  0.880
  0.980
  1.040
  1.080
  1.110
  1.130
  1.140
  1.150
  1.160
  1.160
  1.170
  1.170
  1.170
  1.170
  1.170
  1.180
  1.180
  1.180
  1.180
  1.180
  1.180
  1.180
  1.180
  1.180
  1.180
  1.180
  1.180
  1.180
  1.180
Adjusted equity ratio
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458
  0.458

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  14,654
  23,029
  34,729
  50,572
  71,412
  98,106
  131,475
  172,271
  221,147
  278,636
  347,443
  423,247
  508,499
  603,240
  707,421
  820,920
  943,563
  1,075,148
  1,215,461
  1,364,294
  1,521,461
  1,686,806
  1,860,215
  2,041,620
  2,231,006
  2,428,413
  2,633,933
  2,847,719
  3,069,975
  3,300,961
Depreciation, amort., depletion, $m
  4,487
  5,217
  6,242
  7,638
  9,482
  11,856
  14,836
  18,496
  22,897
  28,092
  30,975
  37,870
  45,646
  54,309
  63,858
  74,282
  85,567
  97,694
  110,643
  124,396
  138,934
  154,242
  170,308
  187,125
  204,691
  223,007
  242,083
  261,929
  282,565
  304,013
Funds from operations, $m
  19,141
  28,246
  40,972
  58,210
  80,894
  109,962
  146,312
  190,767
  244,043
  306,728
  378,418
  461,117
  554,144
  657,550
  771,279
  895,202
  1,029,130
  1,172,841
  1,326,104
  1,488,690
  1,660,395
  1,841,048
  2,030,522
  2,228,745
  2,435,697
  2,651,420
  2,876,016
  3,109,648
  3,352,540
  3,604,974
Change in working capital, $m
  -7,887
  -11,462
  -16,101
  -21,914
  -28,969
  -37,281
  -46,811
  -57,469
  -69,119
  -81,597
  -94,716
  -108,286
  -122,125
  -136,066
  -149,967
  -163,716
  -177,230
  -190,458
  -203,377
  -215,990
  -228,322
  -240,415
  -252,326
  -264,121
  -275,876
  -287,670
  -299,583
  -311,697
  -324,094
  -336,854
Cash from operations, $m
  27,028
  39,708
  57,072
  80,123
  109,863
  147,243
  193,123
  248,236
  313,163
  388,325
  473,134
  569,403
  676,270
  793,616
  921,247
  1,058,918
  1,206,360
  1,363,300
  1,529,481
  1,704,680
  1,888,717
  2,081,462
  2,282,848
  2,492,866
  2,711,573
  2,939,090
  3,175,599
  3,421,345
  3,676,634
  3,941,827
Maintenance CAPEX, $m
  -837
  -1,339
  -2,069
  -3,094
  -4,489
  -6,334
  -8,708
  -11,688
  -15,348
  -19,749
  -24,944
  -30,975
  -37,870
  -45,646
  -54,309
  -63,858
  -74,282
  -85,567
  -97,694
  -110,643
  -124,396
  -138,934
  -154,242
  -170,308
  -187,125
  -204,691
  -223,007
  -242,083
  -261,929
  -282,565
New CAPEX, $m
  -11,910
  -17,297
  -24,297
  -33,069
  -43,715
  -56,258
  -70,640
  -86,723
  -104,304
  -123,132
  -142,930
  -163,408
  -184,291
  -205,329
  -226,306
  -247,053
  -267,447
  -287,408
  -306,904
  -325,937
  -344,546
  -362,795
  -380,768
  -398,569
  -416,307
  -434,104
  -452,081
  -470,362
  -489,070
  -508,324
Cash from investing activities, $m
  -12,747
  -18,636
  -26,366
  -36,163
  -48,204
  -62,592
  -79,348
  -98,411
  -119,652
  -142,881
  -167,874
  -194,383
  -222,161
  -250,975
  -280,615
  -310,911
  -341,729
  -372,975
  -404,598
  -436,580
  -468,942
  -501,729
  -535,010
  -568,877
  -603,432
  -638,795
  -675,088
  -712,445
  -750,999
  -790,889
Free cash flow, $m
  14,282
  21,072
  30,707
  43,960
  61,658
  84,650
  113,775
  149,825
  193,512
  245,444
  305,260
  375,020
  454,109
  542,641
  640,631
  748,007
  864,631
  990,324
  1,124,884
  1,268,100
  1,419,775
  1,579,734
  1,747,838
  1,923,990
  2,108,141
  2,300,295
  2,500,510
  2,708,901
  2,925,635
  3,150,938
Issuance/(repayment) of debt, $m
  32,743
  47,615
  66,883
  91,030
  120,337
  154,866
  194,455
  238,727
  287,124
  338,955
  393,451
  449,824
  507,310
  565,221
  622,968
  680,080
  736,218
  791,167
  844,833
  897,228
  948,454
  998,688
  1,048,166
  1,097,165
  1,145,996
  1,194,986
  1,244,472
  1,294,795
  1,346,293
  1,399,297
Issuance/(repurchase) of shares, $m
  13,068
  17,206
  21,788
  26,350
  30,275
  32,759
  32,843
  29,457
  21,478
  7,787
  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  
  45,811
  64,821
  88,671
  117,380
  150,612
  187,625
  227,298
  268,184
  308,602
  346,742
  393,451
  449,824
  507,310
  565,221
  622,968
  680,080
  736,218
  791,167
  844,833
  897,228
  948,454
  998,688
  1,048,166
  1,097,165
  1,145,996
  1,194,986
  1,244,472
  1,294,795
  1,346,293
  1,399,297
Total cash flow (excl. dividends), $m
  60,093
  85,893
  119,378
  161,341
  212,270
  272,276
  341,074
  418,009
  502,114
  592,186
  698,711
  824,844
  961,419
  1,107,863
  1,263,599
  1,428,087
  1,600,849
  1,781,492
  1,969,717
  2,165,328
  2,368,229
  2,578,422
  2,796,004
  3,021,155
  3,254,137
  3,495,281
  3,744,983
  4,003,696
  4,271,928
  4,550,235
Retained Cash Flow (-), $m
  -27,722
  -40,235
  -56,517
  -76,922
  -101,687
  -130,865
  -164,318
  -201,729
  -242,625
  -286,423
  -332,474
  -380,109
  -428,687
  -477,623
  -526,419
  -574,680
  -622,118
  -668,551
  -713,900
  -758,174
  -801,461
  -843,910
  -885,719
  -927,125
  -968,388
  -1,009,785
  -1,051,602
  -1,094,126
  -1,137,643
  -1,182,432
Prev. year cash balance distribution, $m
  11,770
  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
  44,141
  45,658
  62,860
  84,419
  110,583
  141,411
  176,755
  216,281
  259,489
  305,763
  366,238
  444,735
  532,732
  630,240
  737,180
  853,406
  978,731
  1,112,941
  1,255,817
  1,407,154
  1,566,767
  1,734,512
  1,910,284
  2,094,030
  2,285,749
  2,485,496
  2,693,380
  2,909,570
  3,134,286
  3,367,804
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
  42,321
  41,798
  54,705
  69,510
  85,716
  102,627
  119,413
  135,181
  149,063
  160,300
  173,921
  189,784
  202,555
  211,583
  216,424
  216,869
  212,956
  204,959
  193,360
  178,806
  162,056
  143,919
  125,202
  106,653
  88,919
  72,514
  57,808
  45,015
  34,214
  25,358
Current shareholders' claim on cash, %
  92.2
  86.3
  81.6
  78.0
  75.3
  73.3
  71.8
  70.8
  70.3
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2
  70.2

Alibaba Group Holding Limited is a holding company. Through its subsidiaries, the Company is engaged in online and mobile commerce through offering of products, services and technology that enable merchants, brands and other businesses to transform the way they market, sell and operate in the People's Republic of China (China) and internationally. Its businesses consist of core commerce, cloud computing, mobile media and entertainment, and other innovation initiatives. Through investee affiliates, it also participates in the logistics and local services sectors. Retail commerce in China operated by the Company includes the China online commerce destination (Taobao Marketplace); the China third-party platform for brands and retailers (Tmall), and the sales and marketing platform for flash sales (Juhuasuan). Wholesale commerce in China operated by the Company includes the China domestic wholesale marketplace (1688.com) and the wholesale marketplace for global trade (Alibaba.com).

FINANCIAL RATIOS  of  Alibaba Group Holding ADR (BABA)

Valuation Ratios
P/E Ratio 57.1
Price to Sales 15.8
Price to Book 8.8
Price to Tangible Book
Price to Cash Flow 31
Price to Free Cash Flow 39.7
Growth Rates
Sales Growth Rate 56.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 61.8%
Cap. Spend. - 3 Yr. Gr. Rate 29.7%
Financial Strength
Quick Ratio 10
Current Ratio 0
LT Debt to Equity 27.3%
Total Debt to Equity 32.6%
Interest Coverage 25
Management Effectiveness
Return On Assets 10.5%
Ret/ On Assets - 3 Yr. Avg. 15.9%
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 63%
Gross Margin - 3 Yr. Avg. 65.9%
EBITDA Margin 48.5%
EBITDA Margin - 3 Yr. Avg. 62.4%
Operating Margin 29%
Oper. Margin - 3 Yr. Avg. 28.9%
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 $39592.7859516 million for the last fiscal year's total revenue generated by Alibaba Group Holding ADR. The default revenue input number comes from 0001 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 60% 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 69.6%.

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 5.4% 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 50.1%.

Life of production assets of 23.7 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 -33.2%. 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 - $57874.0705585 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 1363.17 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 $194.8 billion.

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COMPANY NEWS

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