Intrinsic value of Alibaba Group Holding Limited - BABA

Previous Close

$176.69

  Intrinsic Value

$1,291

stock screener

  Rating & Target

str. buy

+631%

Previous close

$176.69

 
Intrinsic value

$1,291

 
Up/down potential

+631%

 
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 458.0

 

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
  63,349
  97,874
  146,370
  212,376
  299,632
  411,925
  552,924
  726,024
  934,216
  1,179,991
  1,465,281
  1,791,447
  2,159,295
  2,569,135
  3,020,847
  3,513,970
  4,047,799
  4,621,471
  5,234,057
  5,884,633
  6,572,354
  7,296,499
  8,056,519
  8,852,070
  9,683,027
  10,549,507
  11,451,869
  12,390,720
  13,366,912
  14,381,537
Variable operating expenses, $m
  42,202
  63,486
  93,384
  134,076
  187,868
  257,095
  344,019
  450,733
  579,082
  730,599
  903,329
  1,104,406
  1,331,181
  1,583,842
  1,862,317
  2,166,322
  2,495,421
  2,849,084
  3,226,736
  3,627,809
  4,051,780
  4,498,207
  4,966,751
  5,457,199
  5,969,475
  6,503,649
  7,059,945
  7,638,736
  8,240,547
  8,866,052
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
  93,384
  134,076
  187,868
  257,095
  344,019
  450,733
  579,082
  730,599
  903,329
  1,104,406
  1,331,181
  1,583,842
  1,862,317
  2,166,322
  2,495,421
  2,849,084
  3,226,736
  3,627,809
  4,051,780
  4,498,207
  4,966,751
  5,457,199
  5,969,475
  6,503,649
  7,059,945
  7,638,736
  8,240,547
  8,866,052
Operating income, $m
  21,147
  34,388
  52,987
  78,301
  111,764
  154,830
  208,905
  275,290
  355,135
  449,392
  561,952
  687,040
  828,115
  985,293
  1,158,530
  1,347,648
  1,552,378
  1,772,387
  2,007,321
  2,256,825
  2,520,573
  2,798,291
  3,089,768
  3,394,871
  3,713,553
  4,045,858
  4,391,924
  4,751,984
  5,126,365
  5,515,485
EBITDA, $m
  25,634
  39,605
  59,229
  85,938
  121,246
  166,686
  223,741
  293,786
  378,031
  477,484
  592,927
  724,910
  873,761
  1,039,603
  1,222,388
  1,421,931
  1,637,945
  1,870,082
  2,117,965
  2,381,221
  2,659,508
  2,952,534
  3,260,077
  3,581,997
  3,918,244
  4,268,866
  4,634,008
  5,013,914
  5,408,931
  5,819,500
Interest expense (income), $m
  357
  1,073
  2,841
  5,412
  9,024
  13,939
  20,438
  28,800
  39,301
  52,192
  67,697
  86,001
  107,247
  131,538
  158,933
  189,455
  223,095
  259,820
  299,576
  342,299
  387,920
  436,371
  487,588
  541,517
  598,118
  657,366
  719,250
  783,779
  850,981
  920,901
  993,601
Earnings before tax, $m
  20,074
  31,547
  47,575
  69,277
  97,825
  134,392
  180,104
  235,989
  302,942
  381,695
  475,951
  579,793
  696,577
  826,360
  969,075
  1,124,553
  1,292,558
  1,472,812
  1,665,022
  1,868,904
  2,084,203
  2,310,704
  2,548,251
  2,796,752
  3,056,187
  3,326,608
  3,608,144
  3,901,003
  4,205,464
  4,521,885
Tax expense, $m
  5,420
  8,518
  12,845
  18,705
  26,413
  36,286
  48,628
  63,717
  81,794
  103,058
  128,507
  156,544
  188,076
  223,117
  261,650
  303,629
  348,991
  397,659
  449,556
  504,604
  562,735
  623,890
  688,028
  755,123
  825,170
  898,184
  974,199
  1,053,271
  1,135,475
  1,220,909
Net income, $m
  14,654
  23,029
  34,730
  50,572
  71,412
  98,106
  131,476
  172,272
  221,148
  278,637
  347,445
  423,249
  508,501
  603,243
  707,425
  820,924
  943,567
  1,075,153
  1,215,466
  1,364,300
  1,521,468
  1,686,814
  1,860,223
  2,041,629
  2,231,016
  2,428,424
  2,633,945
  2,847,732
  3,069,989
  3,300,976

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
  161,193
  249,043
  372,444
  540,397
  762,422
  1,048,155
  1,406,930
  1,847,389
  2,377,140
  3,002,521
  3,728,451
  4,558,388
  5,494,390
  6,537,240
  7,686,633
  8,941,400
  10,299,743
  11,759,469
  13,318,210
  14,973,622
  16,723,546
  18,566,154
  20,500,049
  22,524,350
  24,638,746
  26,843,529
  29,139,616
  31,528,550
  34,012,499
  36,594,242
Adjusted assets (=assets-cash), $m
  161,193
  249,043
  372,444
  540,397
  762,422
  1,048,155
  1,406,930
  1,847,389
  2,377,140
  3,002,521
  3,728,451
  4,558,388
  5,494,390
  6,537,240
  7,686,633
  8,941,400
  10,299,743
  11,759,469
  13,318,210
  14,973,622
  16,723,546
  18,566,154
  20,500,049
  22,524,350
  24,638,746
  26,843,529
  29,139,616
  31,528,550
  34,012,499
  36,594,242
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
  73,332
  106,400
  150,116
  206,374
  277,015
  363,738
  468,042
  591,175
  734,106
  897,515
  1,081,807
  1,287,137
  1,513,444
  1,760,499
  2,027,947
  2,315,357
  2,622,262
  2,948,201
  3,292,749
  3,655,546
  4,036,316
  4,434,887
  4,851,197
  5,285,303
  5,737,386
  6,207,751
  6,696,823
  7,205,150
Working capital, $m
  -21,032
  -32,494
  -48,595
  -70,509
  -99,478
  -136,759
  -183,571
  -241,040
  -310,160
  -391,757
  -486,473
  -594,760
  -716,886
  -852,953
  -1,002,921
  -1,166,638
  -1,343,869
  -1,534,328
  -1,737,707
  -1,953,698
  -2,182,021
  -2,422,438
  -2,674,764
  -2,938,887
  -3,214,765
  -3,502,436
  -3,802,021
  -4,113,719
  -4,437,815
  -4,774,670
Total debt, $m
  52,606
  100,221
  167,104
  258,135
  378,472
  533,339
  727,796
  966,524
  1,253,650
  1,592,606
  1,986,060
  2,435,886
  2,943,199
  3,508,424
  4,131,395
  4,811,478
  5,547,700
  6,338,871
  7,183,709
  8,080,942
  9,029,402
  10,028,095
  11,076,266
  12,173,437
  13,319,440
  14,514,432
  15,758,911
  17,053,714
  18,400,014
  19,799,319
Total liabilities, $m
  87,367
  134,981
  201,865
  292,895
  413,233
  568,100
  762,556
  1,001,285
  1,288,410
  1,627,367
  2,020,820
  2,470,646
  2,977,960
  3,543,184
  4,166,155
  4,846,239
  5,582,461
  6,373,632
  7,218,470
  8,115,703
  9,064,162
  10,062,855
  11,111,027
  12,208,198
  13,354,200
  14,549,193
  15,793,672
  17,088,474
  18,434,775
  19,834,079
Total equity, $m
  73,826
  114,062
  170,579
  247,502
  349,189
  480,055
  644,374
  846,104
  1,088,730
  1,375,155
  1,707,630
  2,087,742
  2,516,431
  2,994,056
  3,520,478
  4,095,161
  4,717,282
  5,385,837
  6,099,740
  6,857,919
  7,659,384
  8,503,299
  9,389,023
  10,316,152
  11,284,546
  12,294,336
  13,345,944
  14,440,076
  15,577,725
  16,760,163
Total liabilities and equity, $m
  161,193
  249,043
  372,444
  540,397
  762,422
  1,048,155
  1,406,930
  1,847,389
  2,377,140
  3,002,522
  3,728,450
  4,558,388
  5,494,391
  6,537,240
  7,686,633
  8,941,400
  10,299,743
  11,759,469
  13,318,210
  14,973,622
  16,723,546
  18,566,154
  20,500,050
  22,524,350
  24,638,746
  26,843,529
  29,139,616
  31,528,550
  34,012,500
  36,594,242
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
  34,730
  50,572
  71,412
  98,106
  131,476
  172,272
  221,148
  278,637
  347,445
  423,249
  508,501
  603,243
  707,425
  820,924
  943,567
  1,075,153
  1,215,466
  1,364,300
  1,521,468
  1,686,814
  1,860,223
  2,041,629
  2,231,016
  2,428,424
  2,633,945
  2,847,732
  3,069,989
  3,300,976
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
  54,310
  63,858
  74,283
  85,567
  97,694
  110,644
  124,397
  138,935
  154,242
  170,309
  187,126
  204,692
  223,009
  242,084
  261,930
  282,566
  304,015
Funds from operations, $m
  19,141
  28,246
  40,972
  58,210
  80,894
  109,962
  146,313
  190,768
  244,045
  306,730
  378,419
  461,119
  554,147
  657,553
  771,283
  895,206
  1,029,135
  1,172,847
  1,326,110
  1,488,697
  1,660,402
  1,841,056
  2,030,532
  2,228,755
  2,435,708
  2,651,432
  2,876,029
  3,109,662
  3,352,555
  3,604,990
Change in working capital, $m
  -7,887
  -11,462
  -16,101
  -21,914
  -28,969
  -37,281
  -46,812
  -57,469
  -69,120
  -81,597
  -94,716
  -108,287
  -122,126
  -136,067
  -149,968
  -163,717
  -177,231
  -190,459
  -203,378
  -215,991
  -228,323
  -240,416
  -252,327
  -264,123
  -275,878
  -287,671
  -299,584
  -311,699
  -324,096
  -336,855
Cash from operations, $m
  27,028
  39,709
  57,073
  80,124
  109,863
  147,244
  193,124
  248,237
  313,164
  388,327
  473,136
  569,406
  676,273
  793,619
  921,251
  1,058,923
  1,206,366
  1,363,306
  1,529,488
  1,704,688
  1,888,726
  2,081,472
  2,282,859
  2,492,878
  2,711,586
  2,939,104
  3,175,613
  3,421,361
  3,676,651
  3,941,846
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
  -54,310
  -63,858
  -74,283
  -85,567
  -97,694
  -110,644
  -124,397
  -138,935
  -154,242
  -170,309
  -187,126
  -204,692
  -223,009
  -242,084
  -261,930
  -282,566
New CAPEX, $m
  -11,910
  -17,297
  -24,297
  -33,069
  -43,715
  -56,259
  -70,640
  -86,723
  -104,304
  -123,133
  -142,930
  -163,409
  -184,292
  -205,330
  -226,307
  -247,055
  -267,448
  -287,410
  -306,905
  -325,939
  -344,548
  -362,797
  -380,770
  -398,571
  -416,310
  -434,106
  -452,083
  -470,364
  -489,072
  -508,327
Cash from investing activities, $m
  -12,747
  -18,636
  -26,366
  -36,163
  -48,204
  -62,593
  -79,348
  -98,411
  -119,652
  -142,882
  -167,874
  -194,384
  -222,162
  -250,976
  -280,617
  -310,913
  -341,731
  -372,977
  -404,599
  -436,583
  -468,945
  -501,732
  -535,012
  -568,880
  -603,436
  -638,798
  -675,092
  -712,448
  -751,002
  -790,893
Free cash flow, $m
  14,282
  21,072
  30,707
  43,961
  61,659
  84,651
  113,776
  149,826
  193,512
  245,445
  305,261
  375,022
  454,111
  542,644
  640,634
  748,010
  864,635
  990,329
  1,124,889
  1,268,105
  1,419,781
  1,579,741
  1,747,846
  1,923,999
  2,108,150
  2,300,305
  2,500,522
  2,708,913
  2,925,649
  3,150,952
Issuance/(repayment) of debt, $m
  32,743
  47,615
  66,883
  91,031
  120,338
  154,867
  194,456
  238,728
  287,125
  338,957
  393,454
  449,826
  507,313
  565,225
  622,971
  680,084
  736,222
  791,171
  844,838
  897,233
  948,459
  998,693
  1,048,171
  1,097,171
  1,146,002
  1,194,992
  1,244,479
  1,294,802
  1,346,300
  1,399,305
Issuance/(repurchase) of shares, $m
  13,068
  17,206
  21,788
  26,351
  30,275
  32,759
  32,843
  29,458
  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
  117,382
  150,613
  187,626
  227,299
  268,186
  308,603
  346,744
  393,454
  449,826
  507,313
  565,225
  622,971
  680,084
  736,222
  791,171
  844,838
  897,233
  948,459
  998,693
  1,048,171
  1,097,171
  1,146,002
  1,194,992
  1,244,479
  1,294,802
  1,346,300
  1,399,305
Total cash flow (excl. dividends), $m
  60,094
  85,893
  119,378
  161,342
  212,271
  272,277
  341,076
  418,012
  502,116
  592,189
  698,715
  824,848
  961,424
  1,107,868
  1,263,605
  1,428,094
  1,600,857
  1,781,500
  1,969,727
  2,165,338
  2,368,240
  2,578,434
  2,796,017
  3,021,170
  3,254,153
  3,495,298
  3,745,001
  4,003,715
  4,271,949
  4,550,257
Retained Cash Flow (-), $m
  -27,723
  -40,235
  -56,518
  -76,923
  -101,687
  -130,866
  -164,319
  -201,730
  -242,626
  -286,425
  -332,476
  -380,111
  -428,689
  -477,625
  -526,422
  -574,683
  -622,121
  -668,554
  -713,904
  -758,178
  -801,465
  -843,914
  -885,724
  -927,130
  -968,393
  -1,009,791
  -1,051,608
  -1,094,132
  -1,137,649
  -1,182,438
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
  62,861
  84,419
  110,584
  141,411
  176,756
  216,282
  259,490
  305,764
  366,239
  444,737
  532,735
  630,243
  737,183
  853,410
  978,736
  1,112,946
  1,255,823
  1,407,160
  1,566,775
  1,734,520
  1,910,293
  2,094,040
  2,285,760
  2,485,507
  2,693,393
  2,909,583
  3,134,300
  3,367,819
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
  54,706
  69,511
  85,716
  102,628
  119,414
  135,181
  149,063
  160,300
  173,922
  189,785
  202,556
  211,584
  216,425
  216,870
  212,957
  204,960
  193,361
  178,807
  162,056
  143,920
  125,203
  106,654
  88,919
  72,515
  57,808
  45,015
  34,214
  25,358
Current shareholders' claim on cash, %
  96.5
  93.8
  91.6
  89.8
  88.4
  87.4
  86.7
  86.2
  85.9
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8
  85.8

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 Limited (BABA)

Valuation Ratios
P/E Ratio 70.6
Price to Sales 19.5
Price to Book 10.9
Price to Tangible Book
Price to Cash Flow 38.4
Price to Free Cash Flow 49.1
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 $39593 million for the last fiscal year's total revenue generated by Alibaba Group Holding Limited. The default revenue input number comes from 0001 income statement of Alibaba Group Holding Limited. 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 Limited, 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 Limited.
    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 Limited.

Corporate tax rate of 27% is the nominal tax rate for Alibaba Group Holding Limited. 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 Limited 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 Limited - 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 2592.198 million for Alibaba Group Holding Limited 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 Limited at the current share price and the inputted number of shares is $458.0 billion.

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