Intrinsic value of Alibaba Group Holding ADR - BABA

Previous Close

$177.32

  Intrinsic Value

$900.74

stock screener

  Rating & Target

str. buy

+408%

Previous close

$177.32

 
Intrinsic value

$900.74

 
Up/down potential

+408%

 
Rating

str. buy

*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 454.1

 

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
  56.10
  50.99
  46.39
  42.25
  38.53
  35.17
  32.16
  29.44
  27.00
  24.80
  22.82
  21.04
  19.43
  17.99
  16.69
  15.52
  14.47
  13.52
  12.67
  11.90
  11.21
  10.59
  10.03
  9.53
  9.08
  8.67
  8.30
  7.97
  7.67
  7.41
Revenue, $m
  22,898
  35,744
  53,970
  79,007
  112,388
  155,688
  210,450
  278,123
  360,005
  457,195
  570,567
  700,756
  848,165
  1,012,981
  1,195,206
  1,394,686
  1,611,156
  1,844,273
  2,093,656
  2,358,919
  2,639,698
  2,935,676
  3,246,602
  3,572,307
  3,912,711
  4,267,831
  4,637,786
  5,022,797
  5,423,187
  5,839,379
  6,271,895
Variable operating expenses, $m
 
  23,645
  34,777
  50,068
  70,456
  96,902
  130,348
  171,680
  221,690
  281,050
  350,292
  427,992
  518,023
  618,686
  729,981
  851,815
  984,025
  1,126,403
  1,278,716
  1,440,727
  1,612,215
  1,792,985
  1,982,886
  2,181,813
  2,389,717
  2,606,609
  2,832,562
  3,067,710
  3,312,251
  3,566,443
  3,830,605
Fixed operating expenses, $m
 
  485
  497
  509
  522
  535
  549
  562
  576
  591
  605
  621
  636
  652
  668
  685
  702
  720
  738
  756
  775
  794
  814
  835
  856
  877
  899
  921
  944
  968
  992
Total operating expenses, $m
  16,253
  24,130
  35,274
  50,577
  70,978
  97,437
  130,897
  172,242
  222,266
  281,641
  350,897
  428,613
  518,659
  619,338
  730,649
  852,500
  984,727
  1,127,123
  1,279,454
  1,441,483
  1,612,990
  1,793,779
  1,983,700
  2,182,648
  2,390,573
  2,607,486
  2,833,461
  3,068,631
  3,313,195
  3,567,411
  3,831,597
Operating income, $m
  6,645
  11,614
  18,696
  28,429
  41,410
  58,251
  79,553
  105,881
  137,739
  175,555
  219,669
  272,143
  329,506
  393,644
  464,557
  542,186
  626,429
  717,150
  814,203
  917,436
  1,026,708
  1,141,896
  1,262,902
  1,389,660
  1,522,139
  1,660,345
  1,804,326
  1,954,166
  2,109,992
  2,271,968
  2,440,297
EBITDA, $m
  8,712
  14,088
  21,507
  31,702
  45,299
  62,939
  85,253
  112,830
  146,199
  185,810
  232,017
  285,080
  345,164
  412,345
  486,622
  567,934
  656,173
  751,198
  852,855
  960,985
  1,075,441
  1,196,093
  1,322,839
  1,455,610
  1,594,373
  1,739,136
  1,889,946
  2,046,895
  2,210,112
  2,379,772
  2,556,086
Interest expense (income), $m
  357
  389
  984
  1,829
  2,991
  4,540
  6,550
  9,091
  12,231
  16,031
  20,541
  25,802
  31,843
  38,684
  46,332
  54,788
  64,045
  74,090
  84,908
  96,480
  108,790
  121,819
  135,554
  149,982
  165,096
  180,892
  197,372
  214,539
  232,405
  250,985
  270,299
Earnings before tax, $m
  8,685
  11,225
  17,712
  26,599
  38,418
  53,710
  73,003
  96,790
  125,507
  159,524
  199,128
  246,342
  297,663
  354,960
  418,225
  487,398
  562,384
  643,060
  729,295
  820,956
  917,919
  1,020,077
  1,127,348
  1,239,678
  1,357,043
  1,479,453
  1,606,954
  1,739,627
  1,877,586
  2,020,983
  2,169,999
Tax expense, $m
  1,993
  3,031
  4,782
  7,182
  10,373
  14,502
  19,711
  26,133
  33,887
  43,071
  53,765
  66,512
  80,369
  95,839
  112,921
  131,598
  151,844
  173,626
  196,910
  221,658
  247,838
  275,421
  304,384
  334,713
  366,401
  399,452
  433,878
  469,699
  506,948
  545,665
  585,900
Net income, $m
  6,319
  8,194
  12,930
  19,418
  28,045
  39,209
  53,292
  70,657
  91,620
  116,452
  145,363
  179,829
  217,294
  259,121
  305,304
  355,801
  410,540
  469,434
  532,385
  599,298
  670,081
  744,656
  822,964
  904,965
  990,641
  1,080,001
  1,173,077
  1,269,928
  1,370,638
  1,475,317
  1,584,099

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
  80,323
  121,280
  177,543
  252,558
  349,860
  472,920
  624,995
  809,000
  1,027,405
  1,282,172
  1,574,732
  1,905,988
  2,276,362
  2,685,856
  3,134,126
  3,620,575
  4,144,434
  4,704,846
  5,300,942
  5,931,905
  6,597,024
  7,295,735
  8,027,657
  8,792,609
  9,590,632
  10,421,992
  11,287,185
  12,186,938
  13,122,200
  14,094,146
Adjusted assets (=assets-cash), $m
  51,505
  80,323
  121,280
  177,543
  252,558
  349,860
  472,920
  624,995
  809,000
  1,027,405
  1,282,172
  1,574,732
  1,905,988
  2,276,362
  2,685,856
  3,134,126
  3,620,575
  4,144,434
  4,704,846
  5,300,942
  5,931,905
  6,597,024
  7,295,735
  8,027,657
  8,792,609
  9,590,632
  10,421,992
  11,287,185
  12,186,938
  13,122,200
  14,094,146
Revenue / Adjusted assets
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
Average production assets, $m
  3,856
  6,005
  9,067
  13,273
  18,881
  26,156
  35,356
  46,725
  60,481
  76,809
  95,855
  117,727
  142,492
  170,181
  200,795
  234,307
  270,674
  309,838
  351,734
  396,298
  443,469
  493,194
  545,429
  600,148
  657,335
  716,996
  779,148
  843,830
  911,095
  981,016
  1,053,678
Working capital, $m
  12,839
  -10,652
  -16,083
  -23,544
  -33,492
  -46,395
  -62,714
  -82,881
  -107,282
  -136,244
  -170,029
  -208,825
  -252,753
  -301,868
  -356,171
  -415,616
  -480,124
  -549,593
  -623,910
  -702,958
  -786,630
  -874,831
  -967,487
  -1,064,548
  -1,165,988
  -1,271,814
  -1,382,060
  -1,496,794
  -1,616,110
  -1,740,135
  -1,869,025
Total debt, $m
  13,271
  28,107
  52,271
  85,466
  129,725
  187,134
  259,739
  349,463
  458,026
  586,885
  737,198
  909,808
  1,105,249
  1,323,770
  1,565,371
  1,829,850
  2,116,855
  2,425,932
  2,756,575
  3,108,272
  3,480,540
  3,872,960
  4,285,200
  4,717,033
  5,168,355
  5,639,189
  6,129,691
  6,640,155
  7,171,009
  7,722,814
  8,296,262
Total liabilities, $m
  32,554
  47,391
  71,555
  104,750
  149,009
  206,418
  279,023
  368,747
  477,310
  606,169
  756,482
  929,092
  1,124,533
  1,343,054
  1,584,655
  1,849,134
  2,136,139
  2,445,216
  2,775,859
  3,127,556
  3,499,824
  3,892,244
  4,304,484
  4,736,317
  5,187,639
  5,658,473
  6,148,975
  6,659,439
  7,190,293
  7,742,098
  8,315,546
Total equity, $m
  40,767
  32,932
  49,725
  72,793
  103,549
  143,443
  193,897
  256,248
  331,690
  421,236
  525,691
  645,640
  781,455
  933,309
  1,101,201
  1,284,992
  1,484,436
  1,699,218
  1,928,987
  2,173,386
  2,432,081
  2,704,780
  2,991,251
  3,291,339
  3,604,970
  3,932,159
  4,273,017
  4,627,746
  4,996,644
  5,380,102
  5,778,600
Total liabilities and equity, $m
  73,321
  80,323
  121,280
  177,543
  252,558
  349,861
  472,920
  624,995
  809,000
  1,027,405
  1,282,173
  1,574,732
  1,905,988
  2,276,363
  2,685,856
  3,134,126
  3,620,575
  4,144,434
  4,704,846
  5,300,942
  5,931,905
  6,597,024
  7,295,735
  8,027,656
  8,792,609
  9,590,632
  10,421,992
  11,287,185
  12,186,937
  13,122,200
  14,094,146
Debt-to-equity ratio
  0.326
  0.850
  1.050
  1.170
  1.250
  1.300
  1.340
  1.360
  1.380
  1.390
  1.400
  1.410
  1.410
  1.420
  1.420
  1.420
  1.430
  1.430
  1.430
  1.430
  1.430
  1.430
  1.430
  1.430
  1.430
  1.430
  1.430
  1.430
  1.440
  1.440
  1.440
Adjusted equity ratio
  0.368
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410
  0.410

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6,319
  8,194
  12,930
  19,418
  28,045
  39,209
  53,292
  70,657
  91,620
  116,452
  145,363
  179,829
  217,294
  259,121
  305,304
  355,801
  410,540
  469,434
  532,385
  599,298
  670,081
  744,656
  822,964
  904,965
  990,641
  1,080,001
  1,173,077
  1,269,928
  1,370,638
  1,475,317
  1,584,099
Depreciation, amort., depletion, $m
  2,067
  2,474
  2,811
  3,273
  3,889
  4,689
  5,700
  6,949
  8,461
  10,255
  12,348
  12,937
  15,658
  18,701
  22,065
  25,748
  29,744
  34,048
  38,652
  43,549
  48,733
  54,197
  59,937
  65,950
  72,235
  78,791
  85,621
  92,729
  100,120
  107,804
  115,789
Funds from operations, $m
  12,671
  10,668
  15,741
  22,691
  31,935
  43,897
  58,992
  77,606
  100,081
  126,707
  157,711
  192,766
  232,952
  277,822
  327,370
  381,549
  440,285
  503,482
  571,038
  642,847
  718,813
  798,853
  882,902
  970,915
  1,062,876
  1,158,791
  1,258,697
  1,362,656
  1,470,758
  1,583,121
  1,699,888
Change in working capital, $m
  1,050
  -3,828
  -5,431
  -7,461
  -9,948
  -12,903
  -16,319
  -20,167
  -24,401
  -28,963
  -33,785
  -38,796
  -43,928
  -49,115
  -54,303
  -59,445
  -64,508
  -69,469
  -74,316
  -79,048
  -83,672
  -88,201
  -92,656
  -97,060
  -101,440
  -105,826
  -110,247
  -114,733
  -119,316
  -124,025
  -128,890
Cash from operations, $m
  11,621
  14,496
  21,172
  30,152
  41,883
  56,801
  75,311
  97,772
  124,482
  155,670
  191,496
  231,563
  276,880
  326,937
  381,672
  440,994
  504,793
  572,951
  645,354
  721,895
  802,485
  887,055
  975,558
  1,067,975
  1,164,316
  1,264,617
  1,368,944
  1,477,389
  1,590,075
  1,707,146
  1,828,778
Maintenance CAPEX, $m
  0
  -424
  -660
  -996
  -1,459
  -2,075
  -2,874
  -3,885
  -5,135
  -6,646
  -8,441
  -10,534
  -12,937
  -15,658
  -18,701
  -22,065
  -25,748
  -29,744
  -34,048
  -38,652
  -43,549
  -48,733
  -54,197
  -59,937
  -65,950
  -72,235
  -78,791
  -85,621
  -92,729
  -100,120
  -107,804
New CAPEX, $m
  -2,538
  -2,149
  -3,062
  -4,206
  -5,608
  -7,274
  -9,200
  -11,369
  -13,756
  -16,328
  -19,046
  -21,872
  -24,765
  -27,689
  -30,614
  -33,513
  -36,367
  -39,164
  -41,896
  -44,564
  -47,171
  -49,724
  -52,236
  -54,718
  -57,188
  -59,660
  -62,152
  -64,682
  -67,265
  -69,920
  -72,663
Cash from investing activities, $m
  -11,337
  -2,573
  -3,722
  -5,202
  -7,067
  -9,349
  -12,074
  -15,254
  -18,891
  -22,974
  -27,487
  -32,406
  -37,702
  -43,347
  -49,315
  -55,578
  -62,115
  -68,908
  -75,944
  -83,216
  -90,720
  -98,457
  -106,433
  -114,655
  -123,138
  -131,895
  -140,943
  -150,303
  -159,994
  -170,040
  -180,467
Free cash flow, $m
  284
  11,924
  17,450
  24,949
  34,816
  47,451
  63,237
  82,518
  105,591
  132,696
  164,009
  199,157
  239,178
  283,590
  332,358
  385,416
  442,678
  504,043
  569,409
  638,679
  711,765
  788,598
  869,125
  953,320
  1,041,178
  1,132,722
  1,228,001
  1,327,087
  1,430,081
  1,537,106
  1,648,311
Issuance/(repayment) of debt, $m
  4,244
  16,991
  24,164
  33,195
  44,259
  57,408
  72,605
  89,724
  108,563
  128,859
  150,313
  172,610
  195,441
  218,521
  241,601
  264,480
  287,005
  309,077
  330,643
  351,697
  372,268
  392,420
  412,240
  431,834
  451,322
  470,834
  490,502
  510,464
  530,854
  551,805
  573,448
Issuance/(repurchase) of shares, $m
  219
  3,633
  3,862
  3,650
  2,711
  685
  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
  20,624
  28,026
  36,845
  46,970
  58,093
  72,605
  89,724
  108,563
  128,859
  150,313
  172,610
  195,441
  218,521
  241,601
  264,480
  287,005
  309,077
  330,643
  351,697
  372,268
  392,420
  412,240
  431,834
  451,322
  470,834
  490,502
  510,464
  530,854
  551,805
  573,448
Total cash flow (excl. dividends), $m
  5,341
  32,548
  45,477
  61,794
  81,786
  105,545
  135,842
  172,242
  214,154
  261,555
  314,322
  371,767
  434,619
  502,111
  573,959
  649,896
  729,682
  813,119
  900,052
  990,376
  1,084,034
  1,181,018
  1,281,365
  1,385,153
  1,492,500
  1,603,556
  1,718,503
  1,837,551
  1,960,935
  2,088,911
  2,221,759
Retained Cash Flow (-), $m
  -9,324
  -11,827
  -16,792
  -23,068
  -30,756
  -39,894
  -50,455
  -62,351
  -75,442
  -89,546
  -104,455
  -119,949
  -135,815
  -151,854
  -167,892
  -183,791
  -199,444
  -214,782
  -229,769
  -244,399
  -258,695
  -272,699
  -286,472
  -300,088
  -313,630
  -327,189
  -340,858
  -354,729
  -368,899
  -383,458
  -398,497
Prev. year cash balance distribution, $m
 
  19,662
  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
 
  40,382
  28,685
  38,727
  51,029
  65,651
  85,388
  109,891
  138,712
  172,009
  209,867
  251,818
  298,804
  350,257
  406,066
  466,105
  530,238
  598,337
  670,283
  745,976
  825,339
  908,319
  994,893
  1,085,065
  1,178,869
  1,276,366
  1,377,645
  1,482,822
  1,592,036
  1,705,453
  1,823,261
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
 
  38,718
  26,260
  33,703
  42,018
  50,888
  61,969
  74,241
  86,698
  98,810
  110,025
  119,585
  127,510
  133,174
  136,324
  136,840
  134,745
  130,188
  123,439
  114,859
  104,875
  93,950
  82,550
  71,116
  60,042
  49,652
  40,193
  31,826
  24,631
  18,617
  13,729
Current shareholders' claim on cash, %
  100
  98.3
  97.2
  96.5
  96.1
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0

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 70.8
Price to Sales 19.5
Price to Book 11
Price to Tangible Book
Price to Cash Flow 38.5
Price to Free Cash Flow 49.3
Growth Rates
Sales Growth Rate 56.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 61.8%
Cap. Spend. - 3 Yr. Gr. Rate 29.7%
Financial Strength
Quick Ratio 10
Current Ratio 0.1
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 $22898 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 56.1% 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 69%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $473 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 16.8%.

Life of production assets of 9.1 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 -29.8%. 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 - $40767 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 2561.13 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 $454.1 billion.

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AMZN Amazon.com 982.91 534.47  sell
BIDU Baidu ADR 264.90 214.89  hold
MSFT Microsoft 78.81 60.77  sell
AAPL Apple 156.25 143.02  hold

COMPANY NEWS

▶ Tech Titans Are Breaking Out, And Then This Happens; S&P 500 Futures   [Oct-22-17 10:55PM  Investor's Business Daily]
▶ A Tale Of 4 IPOs: Facebook, Alibaba, Snap And Square   [Oct-21-17 11:51AM  Investor's Business Daily]
▶ Joined At The Hip With Weibo, Future Of Aging Sina Is At Stake   [04:47PM  Investor's Business Daily]
▶ Holding Alibaba Was Easy; Buying It Was Tricky   [03:25PM  Investor's Business Daily]
▶ Eyes on Quality of Alibabas Top-Line Growth   [03:05PM  Market Realist]
▶ A Look at Alibabas Top Line in Fiscal 2Q18   [01:36PM  Market Realist]
▶ Alibabas Earnings per Share: Whats the Trend?   [11:37AM  Market Realist]
▶ [$$] SEA/Chinese tech IPOs: Masayoshi's sons   [08:48AM  Financial Times]
▶ Better Chinese IPO: Best Inc. vs. Secoo Inc.   [Oct-19-17 01:00PM  Motley Fool]
▶ Alibaba-Backed Qudian IPO Soars In Debut After Pricing High   [04:20PM  Investor's Business Daily]
▶ China IPO Qudian Opens With a Bang   [12:35PM  Barrons.com]
▶ Alibaba Cloud May Soon Be No. 2 After AWS: Exec   [Oct-17-17 07:11PM  Investopedia]
▶ Alibaba Cloud Biz May Be #2 Globally   [09:51AM  Barrons.com]
▶ [$$] It's Time to Hedge China   [Oct-16-17 10:06PM  Barrons.com]
▶ Alibaba Is Still Showing Signs of Slowing   [02:41PM  TheStreet.com]
▶ Alibaba invests US$15b for tech lab in Singapore   [12:16PM  Singapore Business Review]
▶ A Wide-Ranging--and Successful--Corporate Bond Fund   [Oct-14-17 10:28PM  Morningstar]
▶ Qudian IPO: What Investors Need to Know   [Oct-13-17 01:34PM  Motley Fool]
▶ Sogou, Mobile Search Rival Of Baidu And Alibaba, Files For IPO   [10:57AM  Investor's Business Daily]
▶ China's Government Said to Seek Control Over Big Tech   [Oct-12-17 07:11PM  Bloomberg Video]
▶ Behind Alibabas Massive Job Creation Plan   [04:36PM  Market Realist]
▶ [$$] Need Fresh Hairy Crabs? There Are Rival Apps for That   [07:21AM  The Wall Street Journal]
▶ [$$] Alibaba Sizes Up Facebook, Amazon With R&D Splurge   [12:17AM  The Wall Street Journal]
▶ Alibaba launches $15 bln overseas R&D drive   [04:15PM  Reuters Videos]
▶ $200 Club Bullish Stampede   [04:11PM  Zacks]
▶ 10 Companies Owned by Alibaba   [10:57AM  Investopedia]
▶ Chinese retail giant Alibaba opening new R&D lab in San Mateo   [10:19AM  American City Business Journals]
▶ Alibaba Doubles Research Spending to $15B   [06:02AM  Investopedia]
▶ Alibaba's Meek Big Splash   [12:16AM  Bloomberg]
▶ Alibaba Sets Aside $15 Billion for 'Moonshots'   [Oct-10-17 11:08PM  Bloomberg Video]
▶ Alibaba To Report Earnings Nov. 2   [05:14PM  Barrons.com]
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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