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Initiating Coverage
27 October 2014
BUY
Price target $118.00
Price $95.76
Financial Summary
Book Value (MM):
Book Value/Share:
Net Debt (MM):
Return on Avg. Equity:
Long-Term Debt (MM):
Cash & ST Invest. (MM):
Market Data
52 Week Range:
$99.70 - $82.81
Total Entprs. Value (MM):
$238,140.2
Market Cap. (MM):
$238,557.3
Insider Ownership:
12.8%
Institutional Ownership:
54.6%
Shares Out. (MM):
2,491.2
Float (MM):
NA
Avg. Daily Vol.:
NA
Cynthia Meng *
Equity Analyst
+852 3743 8033 cmeng@jefferies.com
Brian Pitz
Equity Analyst
Brian Fitzgerald
Equity Analyst
(212) 284-2491 bfitzgerald@jefferies.com
Karen Chan *
Equity Associate
+852 3743 8017 kchan2@jefferies.com
Nick Wang *
Equity Associate
Valuation/Risks
Our PT of USD118 is derived from 10-year DCF based on a long-term EBIT margin of 43%,
terminal growth rate of 5.5% and WACC of 10.2%, implying a CY16 P/E of 32.5x, 1.4%
premium to global e-Commerce peer average of 32x, 20.4% premium to China e-Commerce
peer group. Risks: limited ability to influence corporate matters by individual shareholders
and potential conflict of interest arising from the companys corporate structure.
RMB
Prev.
2014A
Prev.
2015E
2016E
2017E
Chg (% YoY)
--
Operating Profit
-- 29,392.0
-- 34,486.0
-- 46,382.0
-- 58,467.0
EBITDA (MM)
-- 30,731.0
-- 36,242.0
-- 48,850.0
-- 61,855.0
-- 27,610.0
-- 31,489.0
-- 45,060.0
-- 58,541.0
BV/Share
--
17.50
--
53.00
--
70.25
--
93.20
EPS Growth
--
103.9%
--
7.9%
--
41.6%
--
29.9%
--
$1.90
--
$2.06
--
$2.92
--
$3.79
--
46.3%
-- 105,040.0
Prev.
-- 52,504.0
52.1%
-- 76,812.0
Prev.
Rev. (MM)
--
36.7%
-- 132,115.0
--
25.8%
EPS
FY Dec
FY P/E
Rmb40,818.0
Rmb17.50
(Rmb2,557)
106.5%
Rmb30,711.0
Rmb43,632.0
Qin Wang *
Equity Associate
+852 3743 8016 qin.wang@jefferies.com
Price Performance
100
95
90
85
50.4x
46.5x
32.8x
25.3x
80
SEP-14
OCT-14
Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a
conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment
decision. Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 126 to
130 of this report.
Alibaba (BABA)
BABA
Initiating Coverage
Alibaba Group
27 October 2014
Upside Scenario
Downside Scenario
Share price
LT Earnings CAGR
100
38x
95
36x
85
150%
82.1x
80x
70x
60x
40x
Vipshop
100%
50x
35.3x
40.1x
30x
50%
20x
Amazon
Alibaba
16.0x
10x
0x
Alibaba
Vipshop
Amazon
eBay
Catalysts
Stronger-than-expected mobile
monetization
30x
90x
0%
-12%
80
Peer Group
Group CY15 P/E
32x
70
36%
Acquisition Contribution
75
Other Considerations
28%
34x
90
Scenarios
0%
0.0x
Ticker
Rec.
PT
BABA US
Buy
USD118
VIPS US
Buy
USD280
JD US
Buy
USD38
AMZN US
Buy
USD380
Hold
USD55
EBAY US
eBay
20.0x
40.0x
60.0x
80.0x
100.0x
Company Description
Founded in 1999, Alibaba is the largest online and mobile commerce company in the
world in terms of GMV in 2013, according to IDC. The company operates its marketplaces
as a platform for third parties, and does not engage in direct sales, compete with its
merchants or hold inventory. Alibaba operates Taobao Marketplace and Tmall, the no.1
C2C and B2C platform in China by GMV respectively, according to iResearch.
page 2 of 130
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Table of Contents
Investment Summary
p.5
p.6
p.11
p.25
p.27
p.33
p.53
p.63
p.83
Company Background
p.91
p.92
Partnership System
p.94
p.98
Management Team
p.100
Financial Statements
p.102
Appendix
p.116
p.117
p.120
page 3 of 130
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
page 4 of 130
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
page 5 of 130
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Valuation
Our price target of USD118 is derived from a 10-year DCF analysis based on long-term
non-GAAP EBIT margin estimate of 43%, a terminal growth rate of 5.5% and a WACC of
10.2%. This is equivalent to a market cap of USD292.9bn, implying a FY17 P/E multiple of
31x or CY16 P/E of 32.5x, 1.4% premium to global e-Commerce peer average of 32x,
20.4% premium to China e-Commerce peer average of 27x, and 62.2% premium to China
Internet peer group average of 20x. We do not see a direct comparable to Alibaba among
Chinas e-Commerce players given that JD.com operates an online direct sales model
while Vipshop focuses on a niche flash sales market. Among Chinas Internet subsectors,
we see e-Commerce as the most favorable sector (followed by mobile games, and online
travel) benefitting from the shift in Internet user demographics towards the more mature
30+ year old users who have higher consumption power and will shop online. Companies
in other subsectors such as portal and PC games generally trade at a lower multiple. Based
on Bloomberg consensus, U.S. e-Commerce players, including Amazon, Ebay and Zulily,
on average trade at a 73% and 10% premium to Internet average in FY15 and FY16 P/E
respectively.
At the current price of USD95.8, Alibaba is trading at 25.3x FY17 P/E or 26.5x CY16 P/E.
Our PT of USD118 represents 23% upside to last closing price. Near-term potential
catalysts of the stock include the upcoming Nov 11th Singles Day sales and FY2Q15
earnings results to be released on Nov 4th.
Year-to-date share price performance compared to peers
As of Oct 24, 2014, Alibaba has traded up 40.8% since IPO. Chinas e-Commerce names
have fared well with JD.com up 26.4% since its IPO in May and Vipshop up 155.2% YTD.
On the other hand, U.S. e-Commerce players such as Amazon and Ebay have traded down
28% and 6.8%, respectively, YTD. The average share price of Chinas brick-and-mortar
department store names, including Parkson, Intime Retail, Golden Eagle Retail, Lifestyle
International and Springland International, declined 7.5% YTD on a weighted average
basis.
page 6 of 130
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 1: DCF Analysis
Fiscal Year
Revenue (in RMB mn)
2015E
2016E
2017E
76,812
105,040
132,115
% Y/Y Growth
46.3%
D&A
1,755
Depr % revenue
36.7%
2,468
2.3%
EBIT
34,486
2.3%
46,382
25.8%
3,388
2.6%
58,467
2018E
2019E
2020E
2021E
2022E
2023E
161,715
193,170
225,734
258,603
292,029
327,119
22.4%
4,451
2.8%
71,566
19.5%
5,658
16.9%
2.9%
85,100
14.6%
7,000
12.9%
8,459
3.1%
114,185
3.4%
400,313
11.1%
11,644
128,068
2025E
363,403
12.0%
10,012
3.3%
99,446
2024E
3.6%
15,153
3.7%
142,475
157,188
44.9%
44.2%
44.3%
44.3%
44.1%
44.1%
44.2%
43.9%
43.6%
43.3%
% Y/Y Growth
17.3%
34.5%
26.1%
22.4%
18.9%
16.9%
14.8%
12.2%
11.2%
10.3%
29,919
(4,567)
39,425
(6,957)
13.2%
Capital Expenditures
(9,526)
% of sales
15.0%
(10,564)
12.4%
21,068
% of sales
10.1%
10,659
27.4%
43,217
10.1%
41,988
49,697
(8,770)
15.0%
(11,965)
9.1%
10,180
7.7%
51,299
60,831
72,335
84,529
97,057
108,858
121,104
(10,735)
(12,765)
(14,917)
(17,128)
(19,210)
(21,371)
15.0%
(14,323)
8.9%
11,327
7.0%
62,287
15.0%
(16,915)
15.0%
(19,654)
8.8%
12,045
8.7%
4.5%
2,749,245
5.0%
3,014,883
5.5%
3,337,344
6.0%
3,737,045
(25,134)
8.7%
84,339
95,705
106,546
9.4%
(25,793)
15.0%
(30,914)
8.6%
15.0%
(33,853)
8.5%
13,448
4.4%
43.0%
146,160
(23,578)
(27,990)
12,810
4.9%
133,610
15.0%
8.6%
12,575
5.5%
15.0%
(22,386)
12,464
6.2%
73,124
15.0%
3.8%
171,953
% Margin
EBIT*(1-tax)
10.2%
13,359
8.5%
13,906
4.1%
14,146
3.8%
118,206
129,962
3.5%
141,606
6.5%
19.3x
4,245,514
21.2x
2,749,245
3,014,883
WACC
23.4x
3,337,344
26.2x
3,737,045
29.8x
4,245,514
1,734,447
8.2%
161.6
180.4
206.1
243.7
303.6
81,486
9.2%
126.5
136.7
149.8
167.0
190.5
1,815,933
10.2%
103.7
110.0
117.6
127.0
139.0
292,892
11.2%
87.8
91.9
96.7
102.5
109.5
2,491
12.2%
76.1
78.9
82.2
85.9
90.3
729.0
0.16
$117.6
28.0%
2.2%
2.2%
Applied Beta
Equity risk premium (ERP)
1.2
9.0%
13.1%
3%
15%
page 7 of 130
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 2: Upside to valuation assuming Alibaba to acquire 33% equity interest
of Small and Micro Financial Services Company in 2016
Scenario
#1
#2
#5
10%
20%
-10%
2.9x
3.2x
EV/S assumption
EV of Small and Micro Financial Services Co. (USD mn)
(2)
3.6x
3.9x
4.3x
43,382
48,805
54,227
59,650
65,073
14,316
16,105
19,684
21,474
6.7%
7.3%
(3)
33%
0%
15,132
#4
-20%
#3
3.6x
17,895
292,892
4.9%
5.5%
6.1%
Note: (1) Paypals 2016 EV/S ratio is based on the mean of estimated enterprise value
range and revenue of Paypal published by Jefferies U.S. Internet team on Sept 30, 2014;
(2) assuming equity value is equal to enterprise value with zero net cash; (3) Pursuant to
the 2014 share and asset purchase agreement in Aug 2014, Alibaba is entitled to acquire
up to a 33% equity interest in Small and Micro Financial Services Company
Source: Jefferies estimates
Key Risks
Limited ability to influence corporate matters by individual shareholders
The Alibaba Partnership, consisting of members of management, has the right to
nominate majority of the members in the board of directors. Alibabas two major
shareholders, SoftBank and Yahoo, have also agreed to vote their shares in favor of the
partnerships nominees at each annual general shareholders meeting. This limits the
ability of individual shareholders in influencing corporate matters.
Corporate structure may impose conflict of interest
Alibaba Group conducts the operation of its marketplaces through variable interest
entities which are substantially owned by Jack Ma, the lead founder and executive
chairman of Alibaba. This may impose conflict of interest due to his dual roles as directors
and equity holders of the variable interest entities and as directors of Alibaba Group.
Alibaba does not control Alipay, its payment and escrow service provider, or its parent
entity, Small and Micro Financial Services Company, over which Jack Ma controls majority
of the voting interests. Potential conflicts of interest may arise due to his dual role as
executive chairman of Alibaba and through his voting control over and his economic
interest in Small and Micro Financial Services Company. Alipay handled 78.6% of
Alibabas China commerce retail GMV in FY14. Alipay may also be subject to potential
regulatory risks as regulators in China may increase their focus on online and mobile
payment services.
Potential counterfeit goods sold on marketplace
Although Alibaba has adopted measures to monitor authenticity of products sold on its
marketplaces, the risk of merchants selling counterfeit or infringing products is unlikely to
be eliminated given that Taobao is a C2C platform. This may result in regulatory or legal
action and cause damage to Alibabas reputation.
page 8 of 130
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 3: Alibaba forward P/E band
page 9 of 130
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 4: Peer Comparison Table
Ticker
Company
FX
Last Close
BABA US
Alibaba
USD
95.8
JD US
JD.com
USD
VIPS US
Vipshop
JMEI US
Market Cap
USD mn
PE
EV/Sales
Price to Sales
PEG
ROE
Rating
FY14
FY15
FY16
FY14
FY15
FY16
FY14
FY15
FY16
FY14
FY15
FY16
FY14
FY15
FY16
238,553
46.2
35.3
26.5
19.3
13.8
10.2
19.8
15.0
11.6
2.6
1.1
0.8
44.9%
24.2%
23.4%
Buy
24.0
32,837
n.a.
n.a.
76.6
1.3
0.9
0.7
1.5
1.1
0.8
n.a.
n.a.
n.a.
n.a.
n.a.
0.5%
Buy
USD
213.6
12,071
66.6
40.1
25.3
3.2
2.0
1.3
3.3
2.1
1.5
0.4
0.6
0.4
30.6%
34.8%
36.3%
Buy
Jumei
USD
22.0
3,150
39.4
21.9
14.5
3.8
2.5
1.7
4.7
3.4
2.5
0.6
0.3
0.2
18.3%
22.8%
26.0%
NC
DANG US
Dangdang
USD
12.2
994
60.6
20.7
11.2
0.6
0.5
0.3
0.7
0.6
0.5
2.0
0.7
0.4
15.2%
37.8%
40.7%
NC
2280 HK
HC International
HKD
9.9
849
20.9
12.8
7.7
3.6
2.1
1.0
4.7
3.3
2.2
0.4
0.2
0.1
23.0%
29.1%
34.7%
Buy
46.8
26.1
27.0
5.3
3.6
2.5
5.8
4.2
3.2
1.2
0.6
0.4
26.4%
29.7%
26.9%
AMZN US
Amazon
USD
287.1
132,911
135.8
82.1
52.0
1.5
1.2
1.0
1.5
1.2
1.0
n.a.
1.3
0.9
9.6%
15.0%
21.5%
Buy
EBAY US
eBay
USD
51.1
63,510
17.2
16.0
14.1
3.2
2.8
2.5
3.5
3.1
2.8
3.7
1.8
1.0
16.7%
17.4%
16.5%
Hold
ZU US
Zulily
USD
37.1
4,636
175.9
80.3
43.9
3.8
2.6
1.9
3.8
2.5
1.8
2.7
1.2
0.7
7.1%
n.a.
n.a.
NC
YOOX EU
Yoox S.p.A.
EUR
14.6
1,104
54.1
37.6
27.9
1.6
1.3
1.1
1.6
1.3
1.1
1.7
1.2
0.9
12.0%
14.8%
17.0%
NC
MELI US
MercadoLibre
USD
112.2
4,952
49.6
37.3
31.1
9.4
7.9
6.3
9.7
8.3
6.8
2.5
1.8
1.5
27.9%
30.3%
29.4%
NC
4755 JP
Rakuten
JPY
1,176.0
14,447
28.4
21.8
17.7
2.8
2.5
2.1
2.7
2.4
2.1
1.7
1.3
1.0
16.3%
18.9%
19.8%
Hold
ASOS
GBP
2,107.0
2,825
51.6
48.0
37.6
1.7
1.5
1.2
1.8
1.5
1.2
2.3
2.1
1.7
19.4%
16.8%
18.3%
Buy
56.1
46.2
32.0
3.4
2.8
2.3
3.5
2.9
2.4
2.4
1.5
1.1
15.6%
18.9%
20.4%
ASC LN
Tencent
HKD
119.5
144,285
35.3
25.0
19.0
10.3
8.4
6.9
10.8
8.9
7.3
0.9
0.6
0.6
29.4%
30.6%
29.8%
Buy
3888 HK
Kingsoft
HKD
17.0
2,596
21.8
15.1
10.2
3.0
1.8
1.1
4.9
3.4
2.4
n.a.
n.a.
n.a.
16.7%
19.6%
27.1%
NC
NTES US
Netease
USD
92.7
12,119
15.0
13.2
11.7
4.6
3.8
3.0
6.7
5.7
5.0
1.0
0.9
0.8
22.1%
20.9%
19.7%
NC
PWRD US
Perfect world
USD
21.4
1,061
9.5
8.4
7.8
1.3
1.0
0.8
1.7
1.4
1.3
n.a.
n.a.
n.a.
13.5%
14.8%
14.6%
NC
CYOU US
Changyou
USD
18.2
978
n.a.
13.7
6.4
1.1
1.0
0.8
1.3
1.2
1.1
n.a.
n.a.
n.a.
n.a.
8.1%
13.0%
NC
777 HK
NetDragon
HKD
13.4
879
16.5
14.9
13.5
n.a.
n.a.
n.a.
5.6
4.8
4.3
n.a.
n.a.
n.a.
6.7%
7.3%
7.7%
NC
434 HK
Boyaa
HKD
7.2
700
14.2
10.5
7.7
3.1
1.9
1.1
4.5
3.3
2.5
n.a.
n.a.
n.a.
22.2%
25.3%
25.7%
NC
8002 HK
IGG
HKD
3.4
596
8.2
6.3
4.6
1.9
1.2
0.5
2.9
2.3
1.9
n.a.
n.a.
n.a.
33.9%
30.9%
32.2%
NC
6899 HK
Ourgame
HKD
4.1
414
15.0
10.3
6.9
2.8
1.9
1.1
4.3
3.1
2.2
0.0
0.2
0.1
16.6%
21.7%
24.7%
Buy
16.9
13.0
9.8
3.5
2.6
1.9
4.7
3.8
3.1
0.7
0.6
0.5
20.1%
19.9%
21.6%
BABA US
Alibaba
USD
95.8
238,553
46.2
35.3
26.5
19.3
13.8
10.2
19.8
15.0
11.6
2.6
1.1
0.8
44.9%
24.2%
23.4%
Buy
700 HK
Tencent
HKD
119.5
144,285
35.3
25.0
19.0
10.3
8.4
6.9
10.8
8.9
7.3
0.9
0.6
0.6
29.4%
30.6%
29.8%
Buy
NTES US
Netease
USD
92.7
12,119
15.0
13.2
11.7
4.6
3.8
3.0
6.7
5.7
5.0
1.0
0.9
0.8
22.1%
20.9%
19.7%
NC
SINA US
Sina
USD
39.8
2,655
40.4
30.8
16.3
1.1
0.9
0.6
3.4
2.9
2.4
n.a.
1.0
0.2
2.7%
3.4%
6.1%
Hold
Buy
BIDU US
Baidu
USD
222.6
78,028
37.9
25.8
18.9
9.2
5.8
4.2
9.8
6.6
5.0
n.a.
0.6
0.5
24.3%
26.0%
26.2%
SOHU US
Sohu
USD
44.0
1,694
n.a.
n.a.
29.0
0.7
0.6
0.5
1.0
0.8
0.7
n.a.
n.a.
1.3
n.a.
n.a.
2.1%
NC
RENN US
Renren
USD
3.4
1,356
n.a.
n.a.
n.a.
5.6
6.2
5.6
15.6
14.3
11.2
n.a.
n.a.
1.0
n.a.
n.a.
n.a.
Underperform
YOKU US
Youku
USD
18.8
3,914
n.a.
216.4
30.6
3.7
2.7
1.8
6.0
4.4
3.3
n.a.
n.a.
n.a.
n.a.
0.4%
5.2%
NC
QIHU US
Qihoo 360
USD
68.2
8,587
28.6
17.7
11.1
6.0
3.9
2.6
6.6
4.5
3.3
0.7
0.3
0.2
30.3%
33.1%
34.5%
Buy
SFUN.US
Soufun
USD
10.0
4,099
15.3
11.8
9.7
5.1
3.8
2.8
5.6
4.6
3.8
1.2
1.0
0.8
51.6%
42.9%
35.7%
NC
ATHM US
Autohome
USD
49.9
5,251
48.2
35.4
25.7
16.0
11.0
8.0
16.7
11.9
9.0
1.2
0.9
0.6
28.0%
27.2%
27.7%
NC
BITA US
BitAuto
USD
80.0
3,524
46.5
29.8
22.4
9.7
6.9
5.4
10.3
7.6
6.2
0.8
0.5
0.4
19.2%
21.5%
22.3%
NC
AMCN US
Air media
USD
2.2
131
n.a.
32.6
16.5
0.3
0.3
0.2
0.5
0.5
0.4
n.a.
n.a.
n.a.
n.a.
-0.2%
1.1%
NC
WUBA US
58.com
USD
38.1
3,339
634.2
158.5
20.2
11.8
7.8
5.2
13.3
8.8
6.1
n.a.
n.a.
n.a.
3.8%
9.8%
25.7%
NC
CMCM US
Cheetah Mobile
USD
16.7
2,334
59.6
21.1
9.0
7.8
3.7
1.7
8.5
4.3
2.4
0.5
0.2
0.1
20.2%
38.3%
52.0%
NC
CTRP US
Ctrip
USD
57.1
7,392
53.7
33.1
22.3
5.5
3.9
2.7
6.1
4.6
3.4
1.8
1.1
0.7
8.5%
13.4%
17.2%
NC
QUNR US
Qunar
USD
26.8
3,175
n.a.
n.a.
97.7
11.1
6.7
4.2
11.4
6.6
4.2
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
NC
LONG US
Elong
USD
19.4
685
118.3
45.5
24.7
n.a.
n.a.
n.a.
3.3
2.7
2.4
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
NC
2280 HK
HC International
HKD
9.9
849
20.9
12.8
7.7
3.6
2.1
1.0
4.7
3.3
2.2
0.4
0.2
0.1
23.0%
29.1%
34.7%
Buy
DANG US
Dangdang
USD
12.2
994
60.6
20.7
11.2
0.6
0.5
0.3
0.7
0.6
0.5
2.0
0.7
0.4
15.2%
37.8%
40.7%
NC
JD US
JD.com
USD
24.0
32,837
n.a.
n.a.
76.6
1.3
0.9
0.7
1.5
1.1
0.8
n.a.
n.a.
n.a.
n.a.
n.a.
0.5%
Buy
VIPS US
Vipshop
USD
213.6
12,071
66.6
40.1
25.3
3.2
2.0
1.3
3.3
2.1
1.5
0.4
0.6
0.4
30.6%
34.8%
36.3%
Buy
JMEI US
Jumei
USD
22.0
3,150
39.4
21.9
14.5
3.8
2.5
1.7
4.7
3.4
2.5
0.6
0.3
0.2
18.3%
22.8%
26.0%
NC
VISN US
Vision China
USD
11.6
59
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
NC
CCIH US
ChinaCache
USD
11.8
300
147.1
53.5
357.6
1.0
0.8
0.6
1.2
0.9
0.7
n.a.
n.a.
n.a.
3.7%
6.6%
10.9%
NC
EDU US
New oriental
USD
22.4
3,540
14.7
14.8
12.8
2.2
2.0
1.7
3.0
2.6
2.2
0.3
2.2
0.8
25.0%
23.1%
22.3%
Hold
1980 HK
Tian Ge
HKD
4.9
803
14.5
14.7
11.9
2.9
2.6
1.8
6.0
5.4
4.4
0.4
0.9
0.5
24.7%
12.9%
14.0%
Buy
YY US
YY
USD
81.9
4,580
29.9
20.8
14.4
7.3
4.6
3.1
8.0
5.4
3.9
0.3
0.2
0.1
39.8%
39.4%
35.4%
NC
JOBS US
51job
USD
30.2
1,795
18.5
15.6
12.6
4.8
4.0
3.2
6.0
5.2
4.4
n.a.
n.a.
n.a.
14.3%
16.6%
16.8%
NC
Internet/New Media Avg (excl. P/E ratio >80, EV/S and P/S >15)
36.4
26.0
20.0
4.9
4.2
3.0
5.7
5.2
4.0
0.9
0.7
0.5
22.8%
22.4%
22.7%
Internet overall (excl. P/E ratio >80, EV/S and P/S >15)
30.6
22.2
19.6
4.7
3.5
2.7
6.0
4.5
3.7
0.9
0.7
0.5
22.1%
21.7%
22.4%
Note: Alibabas valuation multiples in the above table are based on calendar year estimates for apple-to-apple comparison against peers
Source: Company data, Bloomberg closing price as of Oct 24, 2014, Jefferies
page 10 of 130
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BABA
Initiating Coverage
27 October 2014
2.
Our analysis shows that China's Internet users aged 30+ years will account for
54% of total Internet users by 2018, up from 33% in 2008, and 81% of the
240mn new incremental Internet users will be 30+ years old. Internet
demographics mix shift to more 30+ year old age groups indicates huge
opportunities in e-Commerce as these users adopt online shopping.
3.
4.
5.
page 11 of 130
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BABA
Initiating Coverage
27 October 2014
page 12 of 130
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BABA
Initiating Coverage
27 October 2014
Urbanization leads to increasing household income
The National New-type Urbanization Plan (2014-2020) released on March 16, 2014,
demonstrates the Chinese governments determination to speed up urbanization for
economic growth expansion through further build-out of transport networks, urban
infrastructure and residential real estate. According to the National Bureau of Statistics,
Chinas urban population grew from 459.1mn in 2000 to 731.1mn in 2013, accounting
for 54% of total population. The government aims to raise the urbanization rate to 60%
by 2020 and further to 70%, implying an urban population of 1B+ by 2030.
Chart 7: Chinas population and urbanization rate
According to the National Bureau of
Statistics, Chinas urban population
grew from 459.1mn in 2000 to
731.1mn in 2013, accounting for
54% of total population.
The government aims to raise the
urbanization rate to 60% by 2020
and further to 70%, implying an
urban population of 1B+ by 2030.
page 13 of 130
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BABA
Initiating Coverage
27 October 2014
Chart 9: Chinas urban household distribution by annual income
The middle income class
experienced the strongest growth in
household income over the past
years.
Percentage of household with
annual income between RMB50K
and 100K increased by 29.3pcpt
from 13.6% in 2005 to 42.9% in
2011.
<RMB10,000
RMB10-20K
RMB20-30K
RMB30-40K
RMB40-50K
RMB50-60K
RMB60-70K
RMB70-80K
RMB80-90K
RMB90-100K
% of household with annual
income between RMB50-100K
2005
4.9%
23.7%
2006
3.3%
19.2%
2007
2.1%
13.4%
2008
1.5%
9.9%
2009
0.9%
7.6%
2010
0.7%
5.5%
26.8%
18.3%
10.7%
5.9%
3.5%
2.0%
1.3%
0.9%
25.3%
19.8%
12.3%
7.3%
4.3%
2.7%
1.7%
1.1%
21.9%
20.2%
14.4%
9.5%
6.1%
3.9%
2.5%
1.6%
17.7%
18.3%
15.0%
10.8%
7.8%
5.3%
3.7%
2.6%
14.8%
17.0%
15.5%
11.7%
8.9%
6.5%
4.5%
3.1%
11.8%
15.5%
15.3%
12.5%
9.6%
7.4%
5.4%
4.1%
8.4%
12.8%
13.8%
12.8%
10.7%
8.3%
6.3%
4.7%
-18.4%
-5.4%
3.1%
6.9%
7.3%
6.3%
5.0%
3.8%
13.6%
17.1%
23.6%
30.1%
34.8%
39.0%
42.9%
29.3%
page 14 of 130
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BABA
Initiating Coverage
27 October 2014
Chart 11: Average spending per online shopper in China
page 15 of 130
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BABA
Initiating Coverage
27 October 2014
Chart 13: Chinas household consumption expenditure
growth (2003-2013)
China surpassed the U.S. to be the largest e-Commerce market by GMV in 2013,
according to iResearch and eMarketer estimates, with Chinas online penetration of retail
sales reaching 10.1% in 2Q14. Chinas e-Commerce market growth is expected to
continue outpace that of the U.S. We estimate Chinas e-Commerce to account for 10.4%
of total retail sales by YE2014, compared to 6.4% in the U.S. as estimated by eMarketer.
Chart 15: Online penetration of retail sales China vs. U.S.
page 16 of 130
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BABA
Initiating Coverage
27 October 2014
Chart 16: E-Commerce penetration of population and Internet users
The number of online shoppers in
China reached 302mn in 2013,
accounting for 49% of Internet users
and 22% of total population,
according to CNNIC.
We estimate the growing number of
online shoppers to reach 358mn in
2014, representing 54% of Internet
users, and further to 582mn in 2018,
68% of the total Internet population.
2010A
2011A
2012A
2013A
2014E
2015E
2016E
2017E
2018E
30.2%
34.3%
39.6%
42.3%
44.9%
47.3%
49.7%
52.0%
54.2%
Wireless (% of population)
64.4%
73.6%
82.6%
91.1%
95.4%
101.2%
105.4%
108.3%
110.0%
5.6%
13.1%
21.0%
33.8%
46.1%
61.5%
73.1%
80.6%
87.1%
NA
13.3%
30.0%
42.1%
49.7%
58.9%
67.5%
71.9%
76.4%
2.9%
4.3%
5.6%
8.0%
10.4%
12.6%
14.5%
15.7%
16.6%
35.1%
37.8%
42.9%
48.9%
53.9%
57.9%
61.4%
64.9%
67.9%
12.1%
14.5%
18.0%
22.4%
26.4%
30.3%
34.1%
38.3%
42.3%
34.4%
38.4%
42.0%
45.8%
49.0%
52.4%
55.6%
59.0%
62.3%
Fixed broadband
4.0%
5.4%
2.7%
2.6%
2.5%
2.4%
2.3%
2.2%
Wireless
9.2%
9.0%
8.5%
4.3%
5.8%
4.2%
2.9%
1.6%
3G/4G
7.5%
8.0%
12.8%
12.3%
15.4%
11.6%
7.5%
6.5%
16.7%
12.1%
7.6%
9.2%
8.6%
4.5%
4.4%
YoY%
Smartphone
E-Commerce
1.3%
1.4%
2.3%
2.4%
2.2%
1.9%
1.2%
0.9%
2.7%
5.1%
6.0%
5.0%
4.0%
3.5%
3.5%
3.0%
2.4%
3.5%
4.4%
4.1%
3.9%
3.8%
4.2%
4.0%
Internet penetration
4.0%
3.6%
3.8%
3.3%
3.3%
3.3%
3.4%
3.2%
Source: Company data, MIIT, iResearch, National Bureau of Statistics, CNNIC, Jefferies
page 17 of 130
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BABA
Initiating Coverage
27 October 2014
Smartphone adoption driving m-Commerce growth
Strong Internet user growth in China is largely driven by mobile Internet user adds, with
73% of newly added Internet users adopting mobile devices, according to CNNIC. We
estimate all Chinese Internet users will be mobile Internet users by 2018, mainly due to
3G/4G LTE wireless and rising smartphone penetration given increasing availability of
lower-end handsets and enhancement in mobile device capability. We estimate Chinas
smartphone users as a % of mobile subscribers to reach 76% in 2018, driven by both
increasing availability of low-end handsets and enhancement in mobile device capability.
We expect wireless penetration in China to reach 105% by 2016, 14pcpt higher than that
in 2013, driven by multiple connected devices.
Chart 18: China smartphone users and penetration
We estimate Chinas smartphone
users as a percentage of mobile
subscribers to reach 76% in 2018,
driven by both increasing availability
of low-end handsets and
enhancement in mobile device
capability.
page 18 of 130
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BABA
Initiating Coverage
27 October 2014
The m-commerce market size surged to RMB274bn in 2013 from RMB11.7bn in 2011,
accounting for 14.5% of total e-commerce transaction volume in 2013, according to
iResearch. We estimate m-Commerce market to reach RMB945bn in 2014, +245% YoY,
representing 34.3% of overall e-Commerce market, and RMB2,174bn in 2015, +130%
YoY. We expect m-Commerce growth to accelerate as it provides consumers a convenient
shopping experience helped by rapid development of m-Commerce enabling
infrastructure such as mobile payment by e-Commerce players such as Alibaba, JD.com,
and social apps like Weixin.
Chart 20: Chinas m-Commerce market size by GMV
page 19 of 130
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BABA
Initiating Coverage
27 October 2014
Chart 22: 1H14 offline retail company ranking
Retail stores
Ranking
1
3
4
5
6
7
8
9
10
11
12
13
14
Department
store
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Revenue
YoY %
Net profit
(RMB bn)
change
(RMB bn)
YoY %
Company (CN)
Company (EN)
17.0
-3.3%
0.8
7.6%
15.1
-5.4%
0.4
-9.6%
Department store
7.4
-2.3%
Supermarket
4.6
-11.3%
Electronics superstore
change
2.6
-6.6%
11.1
62.0%
10.0
-25.3%
0.3
-36.8%
10.0
-4.5%
0.3
-22.1%
9.4
-6.0%
0.4
2.1%
8.6
0.6%
0.4
37.3%
8.2
0.6%
0.3
-6.2%
7.9
-7.9%
0.5
-23.2%
7.9
1.7%
0.5
-30.7%
7.2
-1.1%
0.2
-5.2%
Commercial revenue
7.1
0.1%
6.0
-3.0%
0.1
-41.7%
5.8
0.2%
0.4
-4.5%
Department store
4.4
-1.7%
Supermarket
1.4
6.6%
ChangChun Ouya
5.8
11.6%
0.1
18.7%
5.6
-3.2%
0.4
7.2%
5.3
-2.4%
0.2
-6.8%
5.2
0.8%
0.8
-7.2%
0.4
5.0%
Suzhou Jiuguang
3.2
0.3%
Shanghai Jiuguang
7.3
-5.6%
31.0%
Dalian Jiuguang
-17.6%
Beiren Group
4.3%
4.4
-0.5%
0.1
3.9
-3.0%
0.1
7.5%
3.9
-22.9%
0.1
-75.9%
3.8
-5.6%
0.3
16.1%
3.5
5.9%
0.1
411.4%
Mainland China
2.0
11.3%
Hong Kong
1.5
-0.4%
3.4
2.3%
0.2
39.9%
3.1
-3.8%
0.3
-9.8%
2.2
1.2%
0.0
-23.0%
2.2
2.5%
0.1
-16.1%
2.2
-12.0%
0.1
-34.7%
2.0
2.8%
0.0
-4.0%
2.0
10.6%
0.2
-50.3%
2.0
4.2%
0.1
51.0%
page 20 of 130
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BABA
Initiating Coverage
27 October 2014
Chart 23: 1H14 offline retail company ranking (contd)
Retail stores
Ranking
31
32
33
34
35
36
37
38
39
40
41
Department
42
store
43
44
45
46
47
48
49
50
51
52
53
54
3
4
5
6
Supermarket
7
8
9
10
11
12
13
14
home
appliance
stores
1
2
3
4
5
Net profit
change
(RMB bn)
YoY %
1.8
5.7%
0.1
0.8%
1.7
-20.0%
0.1
-23.2%
1.7
-10.6%
0.0
-15.2%
1.7
1.2%
0.1
5.1%
1.6
-1.1%
0.1
-3.1%
1.4
-16.6%
0.6
2.1%
1.3
-12.8%
0.0
-53.0%
1.2
-10.2%
0.0
-2.4%
1.1
1.7%
0.2
99.3%
1.0
-4.1%
0.1
2.0%
1.0
13.3%
0.1
411.7%
0.8
-17.1%
(1.2)
-12.7%
0.8
-18.6%
0.0
-43.6%
0.6
-16.3%
0.1
-978.0%
0.7
-7.0%
0.1
-49.0%
0.6
-28.0%
0.0
47.9%
0.6
-8.0%
0.0
118.0%
0.5
-23.0%
0.1
110.0%
0.4
-5.4%
0.2
-16.0%
0.4
-27.8%
0.0
0.3
5.0%
(0.9)
-385.9%
0.2
-5.1%
0.0
174.0%
0.2
-5.3%
0.0
-86.6%
0.1
275.0%
(0.1)
-371.0%
206.7
-2.0%
7.7
-20.6%
48.0
7.9%
1.7
8.5%
41.7
9.8%
0.6
9.9%
17.7
22.8%
0.5
16.4%
15.0
-3.7%
0.1
-48.8%
10.4
9.2%
0.3
-9.8%
8.8
3.2%
0.1
-10.9%
6.8
5.6%
0.1
276.5%
6.4
11.4%
0.3
13.3%
6.3
-3.8%
0.0
17.0%
5.5
1.8%
(0.0)
17.0%
5.4
6.8%
0.0
-39.3%
3.7
-3.6%
0.0
164.9%
2.4
9.1%
0.1
3.1%
2.3
-5.3%
0.1
-24.4%
(+)
Subtotal
Electronics &
YoY %
(RMB bn)
Company (EN)
Subtotal
Revenue
Company (CN)
change
14.3%
180.5
7.3%
3.8
51.2
-7.9%
(0.7)
-202.1%
29.1
7.4%
0.7
115.2%
6.2
5.1%
0.1
-5.9%
1.5
16.9%
0.0
-60.3%
Subtotal
Total
5.8%
0.4
5.2%
0.0
23.3%
88.4
-2.0%
0.1
-93.9%
475.6
1.3%
11.6
-20.3%
page 21 of 130
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BABA
Initiating Coverage
27 October 2014
Due to the wide disparity of consumer taste and purchasing power among regions,
Chinas retail market is highly fragmented with the top 20 retailers in aggregate
accounting for approximately 12% of total market share in 2013, compared to 40% in the
U.S., according to Euromonitor International. Retail space per capita of 0.6 square meters
in China was also significantly lower than other developed countries. Unlike in the U.S.,
which is dominated by large department stores or retail chain operators, Chinas retail
market is mostly made up of small and medium size retailers, which generally focus their
operation on respective regions. This fragmented market landscape gives rise to an
increasing number of consumers turning to online e-Commerce platforms for product
selection, lower prices and convenient delivery services.
Chart 24: Comparison between China and other countries in retail space per
capita in 2013
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Chart 25: Scenario analysis of Chinas e-Commerce market size
Market size data (in RMB bn)
2013
2014E
2015E
23,781
26,590
29,999
YoY growth %
Traditional retail sales
11.8%
12.8%
21,889
23,830
26,219
8.9%
10.0%
1,892
2,760
3,780
45.8%
37.0%
YoY growth %
E-Commerce sales
YoY growth %
Scenario
#1
#2
#3
#4
#5
5%
2%
0%
-2%
-5%
25,022
24,307
23,830
23,353
22,639
4,977
5,692
6,169
6,645
7,360
80%
106%
124%
141%
167%
32%
51%
63%
76%
95%
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Rank
Company
Country
Alibaba
China
248.0
Amazon
U.S.
116.4
eBay
U.S.
87.5
JD.com
China
20.7
Rakuten
Japan
16.5
Staples
U.S.
10.4
Walmart
U.S.
10.0
Otto Group
Germany
8.3
MercadoLibre
Argentina
7.8
10
Groupon
U.S.
5.8
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Alibabas business model can be illustrated as follows:
AliExpress
o
Wholesale (7% of FY1Q15 revenue)
Alibaba.com
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China commerce retail (94.7% of FY1Q15 China commerce revenue)
Taobao, Tmall, Juhuasuan
Alibabas China commerce retail business, comprising Taobao Marketplace, Tmall and
Juhuasuan, in aggregate contributed 81.6% of Alibabas total revenue in FY14, and 80.1%
in FY1Q15. This includes online marketing revenue, transaction-based commission and
storefront fees. The three marketplaces generated a combined GMV of RMB1,833bn
(USD296bn) from 279mn active buyers and 8.5mn active sellers in the twelve months
ended June 30, 2014.
We estimate China commerce retail revenue to reach RMB64.8bn in FY15, +51.3% YoY,
accounting for 84.4% of total revenue, largely driven by strong growth in commission
revenue. We expect revenue to further grow 42% YoY to reach RMB92bn in FY16.
Taobao
Taobao is the largest C2C platform in China with GMV reaching RMB1.2trn in FY14,
+42.4% YoY, representing 69.9% of total China commerce retail GMV, and RMB342bn in
FY1Q15, +33.1% YoY, accounting for 68.3% of total GMV. Major product categories on
Taobao Marketplace include apparel and accessories, electronics and appliances, home
furnishings, maternity and baby products.
Basic storefront and listings on Taobao are available for free to sellers. Instead, revenue is
mainly generated through:
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Tmall
Tmall was launched in 2008 to address growing consumer demand for branded products.
GMV generated from Tmall platform reached RMB505bn in FY14, +99.6% YoY,
accounting for 30.1% of total GMV, and RMB159bn in FY1Q15, +80.7% YoY, representing
31.7% of total GMV. Major product categories on Tmall include apparel and accessories,
electronics and appliances, home furnishings, home appliances and maternity and baby
products.
Tmalls revenue is mainly generated through:
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revenue. This is mainly supported by solid growth of marketing revenue as well as paying
members subscribing to China TrustPass.
International commerce
commerce revenue)
wholesale
(75.6%
of
FY1Q15
international
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Chart 31: Alibabas monetization model (as of FY14A)
China commerce revenue (86%)
Retail B2C (94.9%)
Online marketing
(69.4%)
Tmall
Taobao
Juhuasuan
Commission (28.1%)
Tmall
Juhuasuan
Taobao
Commission (79.5%)
AliExpress
M&A strategies
To enhance user engagement and capture new growth opportunities, Alibaba has been
actively pursuing M&A activities, such as Youku Tudou in the digital entertainment
category, Sina Weibo on the mobile front, Autonavi in O2O area, etc. We expect the
company to continue pursuing suitable M&A opportunities in the strategic areas of
mobile commerce, international expansion, rural penetration and expansion into new
verticals of products and services. For a more detailed summary of Alibabas M&A
investments, please refer to p.120.
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We expect to see increasing GMV contribution from Tmall, the leading B2C
player in China with 57.3% market share in 2Q14, given rising consumer
demand for product quality, after-sales services and increasing promotional
efforts by brands. Higher priority of Tmall products over Taobao in search result
listing, regardless of initial login site, also helps increase Tmall merchants
exposure among consumers. We see the increasing GMV contribution from
Tmall as positive for driving continuous revenue growth and PC monetization
rate given that merchants have to pay transaction-based commission in addition
to online marketing fees.
2.
3.
Juhuasuan, the largest online group buying marketplace in China, will shift
towards a high-end brand-focused flash sales model. We believe successful
execution of the flash sales business will depend on Juhuasuans ability in
bringing aboard well-known brands and monitoring product quality.
4.
5.
Alimama, Alibabas proprietary online marketing platform, offers pay-forperformance (P4P) marketing, display advertising and Taobaoke program
(display ads on third-party affiliate partners websites) through the Taobao Ad
Network and Exchange (TANX). We expect advertising revenue growth to
moderate given increasing GMV contribution from mobile on which merchants
typically allocate a smaller proportion of their budget to advertising due to
limited ad slots given screen size constraints. Enhancing mobile-based marketing
products will help narrow the CPC gap between PC and mobile over time.
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Chart 33: No. of active buyers across major e-Commerce players in China (as
of June 30, 2014)
Source: Company data. Note: Alibabas active buyer base represents those on its China
commerce retail business (Tmall, Taobao, Juhuasuan)
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Chart 34: Alibabas self-reinforcing network effect
Alibabas well-established presence
in B2C, C2C and B2B markets and
the interactions between buyers and
sellers across these marketplaces
generates a strong self-reinforcing
network effect. The large merchant
pool of Alibabas marketplaces
generates huge user traffic which in
turn attracts more merchants onto
the platforms.
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Chart 36: Top factors driving repeat purchase on Taobao Marketplace (2013)
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During the 1st ZheJiang Country-level E-Commerce Summit held on Oct 13th 2014,
Alibaba announced the launch of its rural expansion plan named Qian Xian Wan Cun (
). In the next three to five years, Alibaba will invest RMB10bn in building 1K
county-level operation centers and 100K village service stations, extending its eCommerce network coverage to 1/3 of counties and 1/6 of villages in China.
Rural area is still in the early stage of e-Commerce development as rural GMV only
accounted for 8.3% of total GMV on the Taobao marketplace in 2Q14, according to
AliResearch. Growing disposal income and fragmented offline retail infrastructure drives
potential upside for rural e-Commerce penetration. Chinas rural e-Commerce market is
expected to reach RMB460bn in 2016, 2.6x that of RMB180bn in 2014, according to
AliResearch. Alibaba plans to expand into rural areas through enhancing logistics and
delivery services in these areas, acquiring more buyers, sellers and third-party service
providers, enabling transactions of agricultural and consumer products between rural and
urban residents.
Chart 39: Taobao GMV contribution from rural areas
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There are three types of store structures on Tmall:
Tmall merchants must be authenticated and pay a deposit, annual technical service fee
and transaction-based commission fee, depending on the type of products and storefronts.
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Increasing Tmall GMV and more favorable product mix drives commission
Commission revenue is mainly driven by transacted GMV on Tmall, Juhuasuan and
AliExpress that is settled through Alipay as well as product mix. 78.1% of Alibaba's China
retail commerce GMV was settled through Alipay in the twelve months ended June 30,
2014, compared to 78.3% in FY14. Commission rate varies across product categories in
the range of 0.3-5% but is identical across PC and mobile. Higher gross margin products
such as apparels are charged a higher commission rate of 5% compared to 2% in
consumer electronics which typically have a lower margin.
Chart 45: Commission rate by product categories on Tmall
Tmall categories
Commission rate
Apparel
5%
30,000/60,000
5%
60,000
5%
60,000
5%
60,000
4%
30,000
2%/5%
30,000/60,000
2%
30,000
Musical instrument
2%
30,000
0.5%/2%
30,000
0%/2%/3%
30,000/300,000/600,000/700,000
0.5%
30,000
2.5%/5%
30,000/60,000
2%/5%
30,000/60,000
Food
2%
30,000
3%
30,000
3C
2%
30,000
2%/5%
30,000
0.5%
10,000
0.3%/0.5%
10,000
15,000
Home appliance
Game cards
Pre-paid phone cards
Online travel
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Commission revenue reached RMB12bn in FY14, +95.1% YoY, representing 22.9% of total
revenue, and RMB4bn in FY1Q15, +114.1% YoY, 25.5% of total revenue, driven by strong
growth of Tmall's GMV and lottery commission income generated from Taobao during
the World Cup in June 2014. GMV generated from Tmall platform reached RMB441bn in
CY13, +105.1% YoY, representing 28.6% of total China commerce retail GMV, or
RMB505bn in FY14, +99.6% YoY, accounting for 30.1% of total GMV.
We expect continued strong growth of Tmall's GMV given rising consumer demand for
product quality, after-sales services and increasing promotional efforts by brands. In our
view, consumers choose Tmall over Taobao Marketplace for the following reasons:
We estimate Tmall's GMV to reach RMB917bn in FY15, +81.5% YoY, and further to
RMB1,487bn in FY16, +62.2% YoY. This implies a rising GMV contribution from Tmall of
37.9% and 45.5% in FY15 and FY16 respectively, up from 30.1% in FY14.
Alibabas China PC commerce retail monetization rate was 3.03% in FY1Q15, up from
2.94% in FY14, and 2.77% in FY1Q14. Rising monetization rate, defined as revenue
divided by GMV, is driven by increasing GMV and revenue contribution from Tmall. In
addition to commissions, Tmall merchants generally pay marketing service fees for their
products to be displayed on Taobao Marketplace and Tmall. Therefore, the average
amount of revenue generated from each Tmall merchant is much higher than that from a
Taobao merchant.
Chart 48: China PC commerce retail monetization rate
(fiscal year)
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We currently estimate a blended Tmall commission rate of 3.4% and 3.6% in FY15 and
FY16, benefiting from increasing GMV contribution from higher-margin product
categories on Tmall Global (for purchase of imported overseas products for Chinese
consumers), such as apparels, shoes and accessories, health and beauty products.
Assuming that 78% of Tmalls transactions are settled through Alipay, we currently
estimate commission revenue of RMB24.5bn in FY15, +104% YoY, and RMB41.2bn, +68%
YoY, in FY16.
Chart 50: Tmalls GMV trend (fiscal year)
Expect 50% YoY GMV growth on 2014 Singles Day (Nov 11th) promotion
Alibaba started launching an annual promotional campaign on Nov 11th, 2009, a day that
is known as Singles Day in China during which major e-Commerce players compete by
rolling out heavy discounts. Alibaba set record-breaking numbers last year with Taobao
and Tmall GMV in aggregate reaching RMB36.2bn on Nov 11th, +89.5% YoY. Based on
our channel checks, we believe GMV is expected to surpass RMB50bn on the upcoming
2014 Singles Day with 50% YoY growth.
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Chart 54: Alibabas China commerce retail GMV transacted on annual Nov 11
Singles Day promotions
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Qualified Juhuasuan merchants are required to pay a deposit, placement fee and
transaction-based commission fee, depending on the type of products and storefronts.
Deposit
Terms
Refunds
Fixed deposit
RMB500K
Pro-rata deposit
After-sale insurance
-GMV<RMB100K, deposit=GMV;
-RMB100KGMV<RMB300K, deposit=RMB100K;
Refundable 30 days after the
-RMB300KGMV<RMB1mn, deposit=RMB300K;
completion of group buy events
-GMVRMB1mn, deposit=RMB500K.
Merchants pay 0.3% of pro-rata deposit as insurance fee,
Not refundable
up to RMB1,500.
Juhuasuan will shift away from its current mass-market group buy model to a high-end
brand-focused flash sales model. Its new brand sales channel, ladygo.tmall.com, features
15-20 flash sales events with 3 new events starting at 10:00am every day. Current product
offerings are concentrated in apparels, shoes and bags as well as accessories of domestic
brands. We believe successful execution of the flash sales business will depend on
Juhuasuans ability in bringing aboard well-known brands and monitoring product quality.
Chart 32: Comparison between ladygo.tmall.com and Vipshop
Juhuasuan s new brand sales
channel, ladygo.tmall.com, features
15-20 flash sales events with 3 new
events starting at 10:00am every
day. Current product offerings are
concentrated in apparels, shoes and
bags as well as accessories of
domestic brands.
Metrics
Ladygo.tmall.com
Vipshop
15-20
100-200
Product categories
Brands
Mainly domestic
Delivery
Free shipping on order size over RMB268 Free shipping on order size over RMB288
Product return
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1688.com wholesale sourcing channel for retail merchants
1688.com is a leading online wholesale marketplace in China, mainly monetized through
China TrustPass membership fee accounting for 74.1% of its revenue in FY14 with the rest
contributed by premium data analytics and online marketing service.
1688.com has evolved into a transaction platform between wholesalers and buyers, the
majority of which are retail merchants on Taobao and Tmall marketplaces. Approximately
50%-60% of total orders on 1688.com were contributed by Taobao and Tmall merchants
as of Dec 31, 2013, according to TechWeb. With a wide coverage of 49 verticals and 1,709
sub-verticals, 1688.com drives synergy between its wholesale and retail marketplaces,
enabling manufacturers to shorten the distribution chain, and retail merchants to gain
access to a more cost-effective direct sourcing channel.
Chart 55: Chinas B2B market share in 2013
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Leading advertising platform with comprehensive product portfolio
Alibaba is one of the largest advertising platforms in China and was ranked no.2 behind
Baidu in terms of online advertising revenue in 2Q14, according to iResearch, driven by
strong traffic acquisition demand from its merchants, particularly during promotional
campaigns.
Chart 58: Top 10 players ranked by online advertising revenue (2Q14)
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Chart 59: Overview of Alibabas online marketing ecosystem
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Pay-for-performance
Pay-for-performance, or P4P, marketing services, where retail marketplace sellers bid for
keywords that match product or service listings appearing in search or browser results on
a cost-per-click (CPC) basis. Prices are set by merchants through an online auction system.
P4P marketing services are provided on both marketplaces and websites of third-party
marketing affiliates. Merchants are able to carry out targeted marketing based on location,
interest, customer profile, PC/mobile terminal, ad display time during the day, etc.
Chart 60: Screenshot of Alibaba Groups P4P service on Taobao Marketplace
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Diamond Showcase
Diamond Showcase (), or display marketing, where sellers can bid for display
positions on the relevant marketplace or through third-party marketing affiliates at
through the online auction system on a cost-per-mille or CPM basis.
Chart 61: Screenshot of Alibaba Groups Diamond Showcase ads on China retail marketplace
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Taobaoke Program
Through Taobao Affiliate Network, sellers on Taobao Marketplace and Tmall place P4P
marketing and marketing displays on websites and mobile apps of Alibabas marketing
affiliates. Sellers pay Alibaba commissions based on a percentage of GMV for transactions
settled through Alipay, a significant portion of which is then shared with the participating
affiliates. According to the company, the commission rate is set by Taobao merchants in
the range of 1.5% to 50%. Of this commission payment, 90% is paid to publishers with
the remaining 10% paid to Alimama as platform service fees.
Chart 62: Screenshot of Taobaoke Ads placed on third-party affiliate website
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Wangxiaobao
Wangxiaobao ( ) is a pay-for-performance marketing service which allows
wholesale marketplace sellers to bid for keywords that match product or service listings
appearing in search or browser results on a cost-per-click (CPC) basis through online
auction system.
Chart 63: Screenshot of Alibaba Groups WangXiaoBao ads on China wholesale marketplace
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Juhuasuan Promotional Slot
Juhuasuan ( ) promotional slots: sellers pay placement fees to purchase
promotional slots on Juhuasuan marketplace for a specified period.
Chart 64: Screenshot of Alibaba Groups ads placement on Juhuasuan platform
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Moderating ad revenue growth impacted by increasing mobile contribution
Alibabas online marketing revenue reached RMB29.7bn in FY14, +50.9% YoY,
representing 56.6% of total revenue. FY1Q15 revenue was RMB8.4bn, +29% YoY,
accounting for 53.3% of total revenue, driven by a 39.2% increase in number of clicks on
P4P marketing and partially offset by a 6.9% decline in cost-per-click paid by merchants.
The decline in blended CPC was attributed to an increasing revenue contribution from
mobile marketing services, which currently charge merchants at a lower CPC compared to
that on PC.
Merchants generally allocate a certain proportion of their budget to purchase online
marketing services based on GMV generated. Online marketing revenue as a percentage
of China commerce retail GMV was 1.77% in FY14, down from 1.83% in FY13, and
declined further to 1.68% in FY1Q15, compared to 1.89% in FY1Q14. This is due to the
increasing GMV contribution from mobile on which CPC is lower and merchants typically
allocate a smaller proportion of their budget to advertising due to limited ad slots given
screen size constraints.
Chart 65: Online marketing revenue trend (fiscal year)
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Alibaba has amassed a large mobile user base and traffic with its diversified
mobile app portfolio, including its widely used Alipay mobile payment app.
Alibaba saw surging mobile GMV which accounted for 32.8% of total GMV in
FY1Q15, up 21pcpt YoY. We estimate mobile GMV to reach RMB1,068bn in
FY15, +235.4% YoY, representing 44.2% of total GMV, up 25.2pcpt YoY.
2.
Alibabas mobile monetization rate was 0.91% in FY14, much lower than 2.94%
on PC due to the lagging advertising monetization on mobile compared to PC.
Given the inherent monetization hurdles in mobile ad including limited screen
size and balance of user experience, we expect mobile monetization rate to
remain at a discount to PC in the near term. However, we expect better mobilebased marketing products and wider adoption among merchants should help
narrow the CPC and hence, monetization gap between the two terminals. We
currently estimate mobile revenue of RMB19.7bn in F15, +576.6% YoY,
representing 30.3% of China commerce retail revenue and implying a
monetization rate of 1.84%, up 0.93pcpt YoY.
3.
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Chart 68: Chinas m-Commerce market share in 2Q14
Alibaba (Taobao + Tmall) led Chinas
m-Commerce market with a market
share of 84.2%, followed by JD.com
with 5.3% market share and Vipshop
with 2% market share in 2Q14,
according to iResearch.
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Chart 70: Top 10 e-Commerce mobile apps by MAU (August Chart 71: Top 10 e-Commerce mobile apps by DAU (August
2014)
2014)
No.
App
DAU (mn)
No.
App
MAU (mn)
1
Ta oba o
60.1
1
Ta oba o
133.4
2
Tma l l
18.0
2
JD.com
54.8
3
JD.com
11.7
3
Tma l l
46.6
4
Suni ng Yi gou
3.8
4
Suni ng Yi gou
15.7
5
Yi ha odi a n
3.6
5
Yi xun
14.9
6
Yi xun (Tencent)
3.0
6
Yi ha odi a n
13.7
7
Xi a omi
2.2
7
Xi a omi
12.1
8
Vi ps hop
2.2
8
Vi ps hop
11.9
9
Da
ngda
ng
1.9
9
Da ngda ng
11.7
10
Ama zon
1.3
10
Ama zon
8.7
Source: iResearch as of Oct 2014, Jefferies
No.
1
2
3
4
5
6
7
8
9
10
App
Wei xi n (Wecha t)
QQ
Al i pa y
UC Brows er
Sougou Input
Ta oba o
Youku
Si na Wei bo
360 Mobi l e Sa fe
i Qi yi
MAU (mn)
298.6
266.4
161.4
135.6
133.5
133.4
120.0
112.8
105.4
96.8
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Chart 75: Screenshot of Alipay Wallet interface
Note: recent 7-day annualized rate of return refers to the week from Jun 9, 2014 to Jun 15, 2014.
Source: Company data, Jefferies
Alibabas wide variety of mobile apps supported by Alipay Wallet and its various mobile
promotional campaigns drove surging mobile GMV growth. For example, Alibaba
launched Mobile Taobao 3.8 Life Festival on March 8th, 2014, offering discounts on
restaurant dine-in, movie ticket purchase and karaoke via its mobile apps including
Mobile Taobao, Taodiandian and Alipay Wallet. Taobao partnered with 1,500 in-store
brand outlets, 800 restaurants, 300 movie theatres and 230 karaoke operators during this
event. The festival sold a total of 2mn movie tickets and helped boost movie box office
sales to RMB133mn on March 8th, compared to RMB60mn on the same day in 2013.
These mobile-only initiatives encouraged mobile transactions and the adoption of
Alibabas mobile apps.
Alibabas mobile GMV reached RMB319bn in FY14, accounting for 19% of total GMV, 4x
that of FY13. Mobile penetration further rose to 32.8% in FY1Q15 with mobile GMV
surging to RMB164bn and mobile MAU on its China retail marketplaces reaching 188mn
by end of June 2014, according to the company. We expect Alibaba to continue to host
mobile-only promotional events in an effort to drive transactions via mobile device. We
estimate Alibabas mobile GMV to reach RMB1,068bn in FY15, +235.4% YoY, representing
44.2% of its total GMV and further to RMB1,922bn in FY17, 58.8% of total GMV. We
currently estimate Alibabas m-Commerce market share of 88% in 2014 and 79% in 2015.
Alibabas wide variety of mobile
apps supported by Alipay Wallet and
its various mobile promotional
campaigns drove surging mobile
GMV growth. Alibabas mobile GMV
reached RMB319bn in FY14,
accounting for 19% of total GMV, 4x
that of FY13.
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Chart 77: Alibabas m-Commerce market share estimates
Calender year
2012
2013
2014E
2015E
69
274
945
2,174
3,696
5.8%
14.5%
34.3%
57.5%
77.5%
490.3%
297.4%
245.0%
130.0%
70.0%
48
232
832
1,709
2,532
5.7%
15.0%
37.1%
55.7%
64.9%
324.1%
258.7%
105.4%
48.1%
84.7%
88.0%
78.6%
68.5%
YoY growth %
Alibaba's m-Commerce market share
69.5%
2016E
page 58 of 130
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Chart 78: Alibabas PC, mobile and overall monetization rates
We are modelling PC monetization
rate to reach 3.34% in FY15 and
further to 3.54% in FY16, benefiting
from increasing GMV contribution
from Tmall.
We estimate mobile monetization
rate to reach 1.84% in FY15 and
further to 2.31% in FY16, as Alibaba
works on enhancing mobile-based
marketing products and hence
narrowing the CPC and
monetization gap between PC and
mobile.
page 59 of 130
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Chart 80: Top 10 mobile browser by MAU June 2014
No.
1
2
3
4
5
6
7
8
9
10
App
UCWeb
QQ Brows er
Ba i du Brows er
360 Mobi l e Brows er
Opera Brows er
Chrome
Li eba o Brows er
Ma xthon Brows er
2345 Brows er
Sougou Brows er
MAU (mn)
133.5
74.7
29.5
28.3
18.1
8.9
6.6
6.0
3.7
3.5
Sina Weibo: Alibaba acquired 30% equity stake in Sina Weibo by April 2014. Sina Weibo
offers social display ads and promoted marketing products based on the target audiences
geographic location, age, interest etc. Weibo charges advertisers based on CPM (cost per
mille) or CPE (cost per engagement) models. The investment in Sina Weibo allows Alibaba
to leverage on the rich user database of Sina Weibo to develop a social commerce model
and customize targeted marketing solutions for merchants and users.
Momo: According to public new sources, Alibaba made a USD40mn strategic investment
in Momo, one of the most popular location-based social network mobile apps in China,
which allows users to interact with nearby people. The investment may help to enhance
Alibabas positioning in local lifestyle service offerings, in our view.
Sina Weibo and MoMo were ranked no.1 and 5 among social media mobile apps by MAU
in August 2014, according to iResearch.
Chart 82: Top 10 social media mobile apps by MAU - August Chart 83: Screenshot of Momo
2014
No.
1
2
3
4
5
6
7
8
9
10
App
Sina Weibo
Qzone
Ba idu Tieba
Renren
Momo
Qius hiba ike
Tecent Weibo
Weis hi
DSCJ8888
Ba ihe
MAU (mn)
112.8
55.5
28.9
19.7
19.5
13.3
10.9
10.2
7.9
5.6
page 60 of 130
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Umeng: Public news sources reported Alibabas USD80mn strategic investment in
Umeng in April 2013. Umeng provides statistical analysis of mobile apps such as new
adds, active users, traffic channels, etc. We believe Alibaba can better understand user
behaviour on mobile to enhance its mobile monetization ability through its investment in
Umeng.
Chart 84: Top 10 mobile security apps by MAU- August
2014
No.
1
2
3
4
5
6
7
8
9
10
App
360 Mobi l e Sa fe
Tencent Mobi l e Ma na ger
LBE Secrui ty Ma s ter
Ba i du Mobi l e Sa fe
Ki ngs oft Mobi l e Sa fe
Ki ngs oft Mobi l e Anti -Vi rus
SECUREi t
Anti -KungFu Vi rus
Ba i du Sa fe
360 Pri va cy Sa fety
MAU (mn)
105.4
39.6
28.1
20.1
10.6
5.5
4.9
2.7
2.0
1.9
Target
Deal Details
Implied Strategy
June, 2014
UCWeb
(Private)
Weibo
(NASDAQ:
WB)
Apr, 2014/
Apr, 2013
Apr, 2014/
Mar, 2014
TangoMe
(Private)
page 61 of 130
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Table 2: Alibabas mobile investments reported by public news sources
Date
Target
Deal Details
Implied Strategy
Dec, 2013
LBE Security
Master ("LBE
",
private)
Quixey
(Private)
Umeng ("",
private)
Undisclosed
Alibaba led a
USD50mn funding
Acquisition for
USD80mn
Oct, 2013
Apr, 2013
Oct, 2012
MoMo
Strategic investment
("", private) of USD40mn
Source: Bloomberg, Wall Street Journal, Sina News, NetEase News, Tech in Asia, Tech Crunch, Tech Web and Tencent News.
page 62 of 130
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2.
3.
Internet finance: Leveraging on the data and credit history accumulated from
its online platforms, Alibaba, through Small and Micro Financial Services
Company, pushes into Internet finance including wealth management, SME
loan and Internet banking to further enhance user engagement within its
ecosystem. Its money market fund product, Yue Bao, accounted for 98% of
AUM managed by Tianhong Asset Management, making it the largest asset
management company in China in 1H14.
4.
New verticals: Alibaba is making inroads into new verticals such as healthcare,
digital media & entertainment and local lifestyle services to capture growth
opportunities and build out its O2O ecosystem.
page 63 of 130
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In face of increasing need for logistics capacity, Alibaba has been stepping up investment
effort in expanding its logistics platform, including:
Zhejiang Cainiao Supply Chain Management building a logistics hub
Zhejiang Cainiao Supply Chain Management, or China Smart Logistics, was established as
a joint venture by Alibaba Group (48% stake), Yintai Holdings, Fosun Group, Forchn
Holdings and other five major express delivery companies in May 2013 with total
registered capital of RMB5bn. Alibaba owns 48% of the joint venture and has invested
RMB1.68bn as of Mar 31, 2014. The company will complete its full investment of
RMB2.4bn by May 2015.
page 64 of 130
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In 5 to 8 years, through China Smart Logistics, Alibaba aims to build a network of key
logistics hubs across China, including distribution centers, warehouses and other supply
chain facilities, providing 24-hour delivery and supporting the delivery of over 100mn
packages per day, or RMB30bn of daily online retail sales (or RMB10trn annual run-rate).
According to the company, China Smart Logistics intends to build warehouses in 15 cities,
including Beijing, Tianjing, Shanghai, Guangzhou, Hangzhou, Wuhan, Zhengzhou,
Chongqing and Chengdu, which accounted for six of top fifteen cities in terms of delivery
volume market share in 2013. As of July 2014, China Smart Logistics had acquired land
use rights in eight cities and will continue with land acquisition. On the other hand,
JD.com, the leading online direct sales player in China, has seven fulfillment centers and
six front distribution centers with a total of 97 warehouses across 39 cities as of June 30,
2014. This includes Shanghai, Beijing, Guangzhou, Chengdu, Wuhan and Nanjing, which
are among the top fifteen cities with highest delivery volume.
Chart 87: Top 15 cities in terms of delivery volume market share in 2013
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China Post Group expanding footprint in lower-tier cities
On Jun 12, 2014, Alibaba entered into a strategic partnership with China Post Group to
collaborate on logistics delivery, e-Commerce, financial services and information security.
Alibaba and China Post will jointly develop the China Smart Logistics Network and
provide access to each others warehousing, processing center and delivery resources.
As disclosed by the company, China Post has a wide coverage of 100,000 service points
spanning across tier-1 cities to rural villages in China. We believe the strategic cooperation
with China Post will further expand Alibabas footprint in lower-tier cities where online
shopping activities are rapidly rising.
Target
Singapore Post
Limited
(SGX: S08 SG)
Deal Details
SGD313mn (USD249mn) for
10.3% stake
Mar, 2014
Haier Electronics
Group
(HKSE: 1169 HK)
page 66 of 130
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Building a closed-loop ecosystem with payment
M-Commerce, O2O and Internet finance drives payment market growth
Chinas third party PC online payment market grew at a 3-year CAGR of 74.5% to
RMB5.4trn in 2013, representing 31.2% of total third party payment market, according to
iResearch. It is estimated to reach RMB18.5trn in 2017 with a 2013-17E CAGR of 36.2%,
accounting for 35.1% of overall third party payment market, largely driven by increasing
online retail sales and rising investment in funds through new Internet finance tools such
as Yue Bao.
Chinas third party mobile payment market, including online payment, NFC (near-field
communication) and SMS payment, reached RMB1.2trn in 2013, of which mobile online
payment accounted for 93.1%, according to iResearch. Benefitting from accelerating mCommerce development, Chinas third party mobile online payment market grew by
more than 13x YoY to RMB1.1trn in 2013, representing 17.2% of overall third party online
payment market. We believe rising m-Commerce and O2O activities will lead to growing
demand for mobile payment solutions. We estimate third party mobile online payment
market to reach RMB16.5trn in 2017, accounting for 47.2% of overall GMV processed by
third party online payment solutions.
Chart 88: Chinas third party PC online payment market size by GMV
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Chart 91: Chinas third party mobile online payment market size
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Chart 93: Chinas 3rd party online payment market share in 2Q14
Personal convenience (e.g. fund transfer, utility bill payment, credit card
payment, bookkeeping, AliPass)
page 69 of 130
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Chart 95: Summary of applications enabled by Alipay
In the twelve months ended June 30, 2014, Alibabas China retail marketplace
accounted for 29.7% of Alipays total payment volume.
In the twelve months ended June 30, 2014, 78.1% of GMV on Alibabas China
retail marketplaces were settled through Alipay
In the twelve months ended June 30, 2014, 65% of GMV generated on
AliExpress was settled through Alipay.
Driven by the rapid GMV growth of Alibabas China retail marketplaces, as well as rising
payment scenarios given the development of O2O and local lifestyle services, total
payment volume settled through Alipay grew 50% HoH to reach RMB4,825bn
(USD778bn) in the twelve months ended Jun 2014, 3.8x that of Paypal.
page 70 of 130
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Chart 96: Operation metrics comparison across payment tools
Alipay
PayPal
TenPay
Dec-13
Jun-14
Dec-13
Jun-14
Dec-13
Jun-14
800 (1)
n.a.
143
152
>200
n.a.
519
778
180
203
n.a.
n.a.
0.7%-2% (2)
0.7%-2%
3.5%
1%
1%
27.9%
n.a.
n.a.
n.a.
n.a.
3.7%
(3)
15.0%
Given the large user base of Alipay, third party websites such as Vipshop have also
adopted Alipay as one of their online payment solutions. Compared to 0.18-0.19%
charged to internal merchants, Alipay charges merchants outside of its Alibaba
marketplaces a commission fee ranging from 0.7%-1.2% on PC and 1.8%-2% on mobile,
depending on the total transaction volume settled through Alipay within the year. This
rate is much lower compared to Paypals implied commission rate of 3.5% as of June
2014. Alipay also provides an annual payment package offering discounted commission
rates to merchants upon making a prepayment.
Chart 97: Commission charged to merchants (excluding Alibabas
marketplaces) based on GMV settled through Alipay on PC
Compared to 0.18-0.19% charged to
internal merchants, Alipay charges
merchants outside of its Alibabas
marketplaces a commission fee
ranging from 0.7%-1.2% on PC,
according to company data.
Commission rate
0-60K
1.2%
60K-500K
1.0%
500K-1mn
0.9%
1mn-2mn
0.8%
Above 2mn
0.7%
Commission rate
0-1mn
2.0%
Above 1mn
1.8%
Prepayment (RMB)
Transaction volume(RMB)
Commission rate
600
60K
1.0%
1,800
200K
0.9%
3,600
450K
0.8%
page 71 of 130
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27 October 2014
Alipay Commercial agreement & intellectual property and software
technology services agreement
Pursuant to the Alipay commercial agreement, Alipay provides payment processing
services to Alibaba Group and its subsidiaries in return for a fee on preferential terms to
Alibaba. Fees paid by Alibaba to Alipay amounted to RMB1.3bn, RMB1.6bn, RMB2.3bn
and RMB740mn in FY12, FY13, FY14 and the three months ended June 30, 2014
respectively, implying a payment fee of approximately 0.18% as a percentage of payment
volume settled through Alipay on Alibabas China retail marketplaces in FY14.
Pursuant to an intellectual property and software technology services agreement, Alipay
pays Alibaba royalty fees and software technology service fees equal to the sum of an
expense reimbursement plus 49.9% of the consolidated pre-tax income of Alipay. As
disclosed by the company, Alipay paid a royalty and software technology service fee to
Alibaba of RMB27mn, RMB277mn, RMB1,764mn and RMB527mn in FY12, FY13, FY14
and the three months ended June 30, 2014 respectively.
2011 Framework agreement
Upon the occurrence of certain liquidity events of Alipay (including an initial public
offering, a transfer of 37.5% or more of the equity interests of Alipay or a sale of all or
substantially all assets of Alipay), Small and Micro Financial Services Company will pay
Alibaba Group an amount equal to 37.5% of the equity value of Alipay with a minimum
payment of USD2bn and a maximum payment of USD6bn.
If a liquidity event does not occur by the tenth anniversary of July 29, 2011, Alibaba
Group will have the right to demand Alipay effect a liquidity event provided that the
equity or enterprise value of Alipay at such time exceeds USD1bn. If Alibaba demands a
liquidity event and unless the liquidity event is effected by means of a 37.5% or more
equity interest transfer of Alipay, the minimum amount of USD2bn will not be applicable.
2014 Share and asset purchase agreement (SAPA) & amended Alipay
intellectual property and software technology services agreement
On August 12, 2014, Alibaba entered into a share and asset purchase agreement and
restructured the relationships with Small and Micro Financial Services Company and its
wholly owned subsidiary Alipay. The 2011 framework agreement was terminated.
Alibaba agreed to dispose of the SME loan business to Small and Micro Financial
Services Company in exchange for cash consideration and annual fees for seven
years. Alibaba Group will receive an annual fee equal to 2.5% of the average
daily balance of SME loans from 2015 to 2017; and fixed annual fee equal to the
2017 annual fee from 2018 to 2021. The disposal allows the company to focus
on the core e-commerce businesses and eliminates the direct risks of carrying a
loan portfolio on balance sheet, such as credit defaults, capital adequacy,
leverage and regulatory requirements associated with a loan.
The USD6bn cap on the liquidity event payment under the 2011 framework
agreement has been removed, but Alibaba will still be entitled to a payment of
37.5% of the equity value of Small and Micro Financial Services Company.
The profit share has been restructured that the base of profits was expanded
from the pre-tax income of only Alipay to the pre-tax income of all of the
businesses of Small and Micro Financial Services Company, while the profit
sharing percentage has been reduced to 37.5% from 49.9%.
Upon the IPO of Small and Micro Financial Services Company, Alibaba is entitled
to receive a payment equal to 37.5% of the equity value of Small and Micro
Financial Services Company until Alibaba acquire a full 33% equity interest.
page 72 of 130
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27 October 2014
Competitive Landscape
Other major third party online payment players include Tenpay, 99bill and Lakala on
mobile.
Tenpay
Launched by Tencent in 2005, Tenpay is the second largest third party online payment
platform with 19.8% of market share in 2Q14, according to iResearch, leveraging on its
large QQ and Weixin user base of 829.3mn and 438.2mn MAU as of June 30, 2014,
respectively. Tenpays applications include bill payment, money transfer, and purchase of
wealth management products, lottery, etc. In addition, Tenpay is also available as a
payment option on major e-commerce platforms, including Vipshop, Dangdang,
Dianping.com, Jumei, Vancl, etc.
Chart 100: Summary of applications enabled by Tenpay
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27 October 2014
Chart 101: Commission rates charged by Tenpay
Prepayment (RMB)
0
480
1680
3750
7000
12K
25K
45K
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27 October 2014
Chart 104: Lakalas Kaidianbao
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27 October 2014
Developing Internet finance opportunities for buyers and sellers
Online retail sales including B2C and C2C accounted for 35.2% of third party online
payment market in 2013, down 6.3pcpt YoY, due to the significant increase in Internet
finance activities. Share of B2B e-Commerce remained largely stable at 3.7% given that
monetization of B2B online transactions was still at an early stage of development.
Chart 105: Chinas 3rd party online payment market breakdown
As of end of
AUM (in RMB bn)
2Q13
3Q13
4Q13
1Q14
2Q14
4.8
55.7
185.3
541.3
574.2
1057%
233%
192%
QoQ
YoY
No. of users (in mn)
2.5
QoQ
13.7
43.0
81.0
443%
215%
88%
YoY
Average AUM per user (RMB)
QoQ
6%
11837%
114.1
41%
4438%
1,912
4,071
4,307
6,683
113%
6%
55%
YoY
5,030
-25%
163%
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27 October 2014
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27 October 2014
Chart 108: AUM of Yue Bao
Chart 110: Comparison across Alibabas Yue bao, Tencents Licaitong and Baidus Baifa
Company
Product name
Alibaba
Yu'E Bao
Peak 7-day
Latest 7-day
annualized
annualized
rate of return
rate of return
6.763%
4.230%
7.902%
4.571%
Payment tool
Alipay
Fund partners
Baidu
Licaitong
Baifa
Weixin Payment
Baidu Wallet
()
5.254%
4.851%
E Fund Management ( )
5.405%
5.311%
GF Fund Management ( )
5.823%
5.394%
8.004%
n.a.
No. of users
(as of Jun 30,
2014)
Average AUM
per user
Launch date
114mn
RMB5,030
17-Jun-13
n.a.
n.a.
22-Jan-14
n.a.
n.a.
25-Mar-14
n.a.
n.a.
17-Apr-14
n.a.
n.a.
17-Apr-14
n.a.
n.a.
28-Oct-13
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According to the share and asset purchase agreement in Aug 2014, Alibaba agreed to
dispose its SME loan business to Small and Micro Financial Services Company. Instead of
recognizing interest income from SME loan business in the line of revenue, Alibaba will
receive economic benefits from the Small and Micro Financial Services Company in the
form of:
an annual fee equal to 2.5% of the average daily balance of SME loans from
2015 to 2017; and fixed annual fee equal to the 2017 annual fee from 2018 to
2021.
a profit share of 37.5% of the pre-tax income of all of the businesses of Small
and Micro Financial Services Company (including SME loan business).
We estimate Alibabas economic benefits received from Small and Micro Financial Services
Company based on the following assumptions:
Payment processing revenue: We estimate Alipays payment volume of RMB6,684bn
in FY15, +72.6% YoY, and RMB9,730bn in FY16, +45.6% YoY. We expect Alipays
transactions contributed by Alibabas China commerce retail marketplaces to decline
gradually as payment scenarios of Alipay continue to diversify. We estimate internal
transactions to account for 28% and 26% of Alipays payment volume in FY15 and FY16
respectively, down from 34% in FY14. Assuming an average commission rate of 1%
charged to external merchants outside Taobao/Tmall and a 0.19% preferential payment
processing fee paid by Alibaba for internal transactions, we estimate Alipays total revenue
of RMB44.7bn in FY15, +60% YoY, and RMB67.8bn in FY16, +51.8% YoY.
Yue Bao management fee: As disclosed by Tian Hong Asset Management and Alipay,
Yue Bao incurs an aggregate fee of 0.63%, including management fee of 0.3%, fund
custodian fee of 0.08% and sales and service fee of 0.25%. Among which, approximately
26.7% of the management fee is paid to Alipay, according to public news sources. We
currently estimate Alipays management fee received from Yue Bao to reach
RMB489.1mn in FY15 and RMB606.3mn in FY16, assuming stable growth in AUM.
SME loan interest revenue: For the SME loan business, we estimate interest revenue to
reach RMB3.3bn in FY15, +90.6% YoY, and RMB4.7bn in FY16, +39.6% YoY. Hence, we
estimate total revenue of Small and Micro Financial Services Company of RMB48.5bn in
FY15, +88.8% YoY, and RMB73.1bn in FY16, +50.7% YoY.
Overall economic benefits: Assuming a 12.6% pre-tax income margin of Small and
Micro Financial Services Company and Alibabas 37.5% share of its pre-tax income, we
estimate royalty and software technology service income Alibaba receives from Small and
Micro Financial Services Company to be RMB2.5bn in FY15 and RMB3.4bn in FY16.
Zhejiang Internet Commerce Bank
On Sept 29, 2014, Small and Micro Financial Service Company received an approval from
the China Banking Regulatory Commission to set up the Zhejiang Internet Commerce
Bank in Hangzhou jointly with three other parties. Small and Micro Financial Service
Company will hold 30% equity stake, while a Fosun Group subsidiary, Wangxiang Group
subsidiary and NBRC will hold 25%, 18% and 16% stakes, respectively. Back in March
2014, the China Banking Regulatory Commission announced its plan to grant banking
licenses to ten private companies. In July 2014, three separate banks, including one in
Shenzhen led by Tencent, one in Tianjing and one in Wenzhou led by other investor
groups, were granted approval. Shanghai JuneYao Group, the parent company of
Juneyao Airlines, also received a banking license on Sept 29, 2014.
Using Internet as a sales channel supported by cloud computing and big data analysis,
the bank will focus on serving investment and financing needs of small businesses and
individual consumers with deposit products below RMB200K and loan products below
RMB5mn. The bank will have six months to complete preparation for operation. In our
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27 October 2014
view, Alibabas big data accumulated from the internal transaction history of consumers
and its huge SME merchant base will be key advantages in meeting the underserved
financing needs of small businesses and individuals.
Expanding into new verticals and O2O services
Operating under a platform model without taking inventory, Alibaba is able to offer a
wide selection of products, including long-tail products (more niche and tailored items),
under 118 categories and 2,000 sub-categories. On average, active buyers placed orders
in 10.1 product categories out of 118 in the 12 months ended June 30, 2014, up from 9.4
in the same period in 2013 and 8 in the same period in 2012. Alibaba continues to
expand its presence in more specialty categories, such as digital entertainment and local
services, through strategic investment in leading category players.
Chart 111: Number of product categories in which average active buyers
placed orders
Youku Tudou: In May 2014, Alibaba purchased 16.5% equity stake in Youku
Tudou, one of Chinas leading online video players, for USD1.1bn.
Wasu: In April 2014, Alibaba entered into a full recourse loan of RMB6.5bn with
Mr. Simon Xie, one of Alibabas founders, to finance a minority investment in
Wasu via Hangzhou Yunxi, a limited partnership owned by Mr. Xie.
Consequently, Alibaba entered into strategic business arrangements with Wasu
to enhance its digital entertainment strategy. Wasu is a public company
engaged in the business of digital media broadcasting and distribution in China.
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Healthcare
Alibaba gained a foothold in the healthcare sector through its investment in CITIC 21CN, a
leading developer of product identification, authentication and tracking systems for
pharmaceuticals and medical products in China earlier this year. As part of the Future
Hospital initiative, Alibaba aims to enhance the efficiency of hospital operation, including
EHR and prescription, through Alipay and its cloud computing platform.
CITIC 21: In April 2014, Alibaba acquired a 38% interest in CITIC 21 for
HKD932mn (USD120.3mn). Yunfeng Capital, a private equity firm co-founded
by Jack Ma, acquired another 16% stake resulting in an aggregate stake
purchase of 54% for HKD1.33bn (USD171mn). The two companies jointly
developed and launched an app in July that allows users to verify drug
authenticity through barcode scanning combining CITIC 21CNs drug data and
Alibabas cloud computing and big data technology. As of Sept 4, 2014, the
company was renamed as Alibaba Health Information Technology Ltd.
Travel
Alibaba made its first investment post-IPO in Beijing Shiji Information Technology, a
technology software and service provider for hotel management, allowing the company
to explore synergy between Taobao Travel, Alibabas travel platform, and the hotel
information data & customer base of Shiji.
Shiji: On Sept 28, 2014, Alibaba acquired a 15% stake in Beijing Shiji
Information Technology with RMB2.8bn (USD457mn). Alibaba will integrate the
backend management system of Taobao Travel with the hotel information
management system of Shiji. According to Shiji, its customer base covers 90% of
Chinas five-star hotels. The large hotel customer base of Shiji will allow Alibaba
to explore potential O2O opportunities in the travel industry, in our view.
O2O
Alibaba continues to beef up its local service offering and capability by accessing massive
location data and offline local merchant base through its investments.
Autonavi: In April 2014, Alibaba fully acquired Autonavi, a leading digital map
and navigation provider in China, for USD1bn, in addition to its existing 28%
stake purchased back in May 2013. This helps enhance Alibabas location-based
service offerings to its mobile users leveraging on Autonavis mapping
technology. Its data has already been integrated into Alibabas Taobao Diandian
to provide a location-based food ordering service.
Intime: In July 2014, Alibaba acquired a 9.9% equity stake and convertible
bonds which upon conversion would translate into an additional 16% stake in
Intime, a leading department store and shopping mall operator. Alibaba and
Intime established a joint venture in July 2014, in which Alibaba invested
USD13mn for an 80.1% equity stake, to develop an O2O business related to
shopping malls, department stores and supermarkets. The two companies
cooperate in developing an offline-to-online multi-channel retailing model
that enables users to purchase online inventory through mobile devices while
shopping in physical stores.
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2.
On Oct 15, 2014, Alipay launched ePass, a new payment processing service for
Chinese consumers to make direct purchase on U.S. retail websites. In our view,
this significantly lowers the barrier for overseas merchants in reaching the
300mn+ Chinese online shoppers, while unlocking the purchasing power of
Chinese consumers, particularly young professionals, who have a huge demand
for foreign brands.
3.
4.
Alibaba is also making forays into international retail market through AliExpress,
its global consumer marketplace, and 11 Main, its U.S. shopping site. According
to Nielsen, China is the second largest cross-border online shopping destination
in U.S., UK and Brazil.
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However, there are certain complications with direct purchase from foreign retailers,
including long delivery time, language barriers, difficulty in product return, etc.
According to a survey conducted by Tmall Global, 43% of respondents find long delivery
time as the most often encountered problem in their cross-border shopping experiences,
followed by costs and language barriers.
Chart 114: Most encountered problem by Chinese consumers in cross-border
shopping experience
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To set up a storefront on Tmall
Global, merchants are required to
pay a USD25K one-time deposit, an
annual service fee of USD5K or
USD10K with a commission rate in
the range of 0.5-5% of GMV
(logistics fee inclusive), depending
on product category. Alipay also
charges a service fee equal to 1% of
GMV.
Tmall Global
Physical store
Within China
Outside China
Legal Entity
Within China
Outside China
Local team
Required
Not required
Local currency
Shipment
Tax
Deposit: USD25K
Commission: 0.3-5%
Fees
#1
#2
#3
30.0%
40.0%
183.7
244.9
50.0%
60.0%
70.0%
306.2
367.4
428.7
12.9
15.0
3.5%
6.4
8.6
#5
612
#4
10.7
127.2
133.6
135.8
137.9
140.1
142.2
5%
7%
8%
10%
12%
page 86 of 130
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international credit cards). By taking a certain percentage of the transaction as service
fees, Alipay will benefit from incremental revenue contribution from the launch of ePass.
Alibaba.com
Connecting Chinas SMEs with global wholesale buyers
Launched in 1999, Alibaba.com is Alibabas first online commerce platform and the
leading global online wholesale platform in China by revenue in 2013, according to
iResearch. Alibaba.com helps to connect global wholesale buyers with Chinese
wholesalers and manufacturers. Major product categories on the platform include
consumer electronics, machinery and apparel. Alibaba.com monetizes mainly through
membership subscription fees, accounting for 87.6% of global wholesale marketplace
revenue in FY14 or 86.4% in FY1Q15, with the rest contributed by P4P online marketing.
The Gold Supplier membership service allows merchants to host premium storefronts
with upgraded storefront management tools, custom clearance, VAT refund and other
import/export business solutions.
Building a global B2B ecosystem with transaction data
In order to improve its one-stop exports service offering, Alibaba completed the
acquisition of ShenZhen OneTouch () in May 2014. OneTouch, founded in
2001, is the first platform in China engaged in providing import and export business
process outsourcing service for SMEs. According to China National Customs Information
Center, OneTouch was ranked No.4 in terms of values of exports among general trade
enterprises in China in 2013. In our view, the acquisition of OneTouch helps to enhance
customer stickiness on Alibaba.com by providing comprehensive export-related service
solutions for SMEs including customs clearance, logistics, cargo insurance, currency
exchange, tax refund, financing and certification, etc.
The competitive edge of Chinese exporters is gradually diminished given rising labor and
raw material costs. Outsourcing business process to integrated export-service platform
like OneTouch allows exporters to save on logistics and financing costs. By providing
banks with information such as transaction records, OneTouch is also able to secure
cheaper financing for small and mid-sized exporters, of which the company will take 1-1.5%
of the monthly interest as service fee. These products, jointly developed with Bank of
China, include financing for orders, packing loan under letter of credit, loan on credit and
foreign exchange value preservation. In order to aggregate more transaction data and
gain better loan terms from banks, Alibaba.com launched a rebate program in May 2014
offering up to RMB0.03 for every USD1 in export value handled through OneTouch to
attract more paying members onto its platform. As a longer term strategy, Alibaba.com
hopes to leverage on these transaction data to build up a B2B export-focused credit
system for providing trade financing to small businesses.
Revenue generated from Alibaba global wholesale marketplace grew 3.8% YoY to
RMB3.9bn, representing 7.5% of total revenue in FY14, and RMB1.1bn in FY1Q15, +18.4%
YoY. We expect global wholesale marketplace revenue growth to be mainly driven by
increasing number of paying members. We estimate revenue of RMB4.7bn in FY15, +20.5%
YoY, and RMB5.3bn in FY16, +11.7% YoY.
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Chart 117: Screenshot of Alibaba global B2B marketplace Integrated export service platform for SMEs
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AliExpress
Making forays into international retail market
Alibaba launched AliExpress in 2010, a global consumer marketplace that brings made-inChina products to global consumers. AliExpress generated an USD4.5bn GMV in the
twelve months ended June 30, 2014, 65% of which was settled through Alipay.
Transactions settled through Alipay are charged with a 5% commission rate. Coming off a
small base, Alibabas international retail commerce business reached RMB938mn in FY14,
+139.3% YoY, and RMB358mn in FY1Q15, +100% YoY, representing 2.3% of total
revenue. According to Nielsen, China is the second largest cross-border online shopping
destination in U.S., UK and Brazil, while coming in at third in Australia.
Chart 120: Top five cross-border online shopping
destinations from U.S.
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Alibaba, through its U.S. subsidiaries Vendio and Auctiva, beta launched 11 Main, its U.S.
shopping site on June 11, 2014. The site features curated made-in-US products in nine
major categories including fashion, home goods, jewelry, baby products, collecting, tech,
sporting goods, toys and entertainment. We believe this represents a still very early foray
into the U.S retail market by Alibaba.
We currently estimate international retail commerce revenue of RMB1.8bn in FY15,
+96.9% YoY, representing 2.4% of total revenue, and RMB2.6bn in FY16, +41% YoY, 2.5%
of total revenue.
page 90 of 130
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Company Background
Company Description
Founded in 1999, Alibaba is the largest online and mobile commerce company in the
world in terms of GMV in 2013, according to IDC. The company operates its marketplaces
as a platform for third parties, and does not engage in direct sales, compete with its
merchants or hold inventory. Alibaba operates Taobao Marketplace and Tmall, the no.1
C2C and B2C platform in China by GMV respectively, according to iResearch. The
company generated RMB1,833bn (USD296bn) GMV on its China retail marketplaces from
279mn active buyers and 8.5mn active sellers in the twelve months ended June 30, 2014.
Alibaba mainly generates its revenue from online marketing services, commissions on
transactions and fees for online services.
Alibaba started trading under the ticker BABA on NYSE on Sept 19, 2014.
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Corporate Structure
Alibaba Group Holding Limited is a Cayman Islands holding company established on June
28, 1999, by Jack Ma and 17other founders. The company conducts its business in China
through subsidiaries and variable interest entities (VIE). Its principal subsidiaries consist of
Taobao Holding Ltd., Toaboa China Holding Ltd., Taobao (China) Software Co., Ltd.,
Zhejiang Tmall Technology Co., Ltd., Alibaba.com Ltd., Alibaba.com Investment Holding
Ltd. and Alibaba Investment Ltd. However, due to Chinas legal restrictions on foreign
ownership in the operation of Internet content providers, operation of Alibabas
marketplaces is conducted through five variable interest entities as follows:
These entities, except Zhejiang Taobao Network, are 80%-owned by Jack Ma, lead
founder and executive chairman, and 20%-owned by Simon Xie, one of the founders and
vice president of Alibabas China investment team. Zhejiang Taobao Network is 90%owned by Jack Ma and 10%-owned by Simon Xie. Alibaba Group, through its whollyforeign owned enterprises, entered into certain contractual arrangements with these VIEs
which results in a transfer of substantially all of the profits from the VIEs to the whollyforeign owned enterprises.
Chart 125: Alibabas corporate structure
Note: (1) Other subsidiaries includes 40 subsidiaries and consolidated entitles incorporated in China and 71 subsidiaries incorporated in
other jurisdictions that are note illustrated in this chart. (2) Primarily involved in the operation of Taobao Marketplace; (3) Primarily
involved in the operation of Tmall and Juhuasuan. (4) Primarily invloved in the operation of Alimama; (5)Primarily involved in the operation
of Alibaba.com, 1688.com and AliExpress; (6) Primarily involved in the operation of cloud computing services. (7) Each of these variable
interest entitles is 80% owned by Jack Ma and 20% owned by Simon Xie, other than Zhejiang Taobao Network Co., Ltd, which is 90%
owned by Jack Ma and 10% owned by Simon Xie.
Source: Company data as of Sept 15, 2014
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27 October 2014
Shareholding Structure
On Sept 19, 2014, Alibaba completed its IPO offering on NYSE, offering 320mn ADS (38%
primary) and an additional 48mn ADS in over-allotment (54% primary) at the price of
USD68. Each ADS represents an ownership interest in one ordinary share.
Alibabas total outstanding ordinary shares immediately post IPO offering was 2,465mn.
With the full exercise of over-allotment option, total outstanding ordinary shares post
offering amount to 2,491mn.
Softbank, a public company listed on the Tokyo Stock Exchange and the largest
shareholder of Alibaba group, did not sell any shares during the offering. The company
retains 32% of outstanding shares with over-allotment fully exercised.
Yahoo, the second largest holder of the company, sold 140mn shares during the offering,
including 18.3mn additional shares sold in over-allotment, resulting in 15.4% of total
outstanding shares post offering.
Jack Yun Ma, the founder and executive chairman of Alibaba, and Joseph C. Tsai, executive
vice chairman, owned 7.7% and 3.1% of total outstanding shares after the offering with
full exercise of over-allotment, respectively. All directors and executive officers as a group
hold 12.8% of total outstanding shares post offering.
Chart 126: Alibabas shareholding structure (with full-exercise of over-allotment)
Note: (1) The shareholder structure is based on 2,491,149,869 ordinary shares outstanding as of Sept 18, 2014, including 2,465,005,966
ordinary shares outstanding immediately after offering plus additional 26,143,904 ADSs offered by Alibaba upon full exercise of overallotment option. (2) SoftBank Corp. is a public company listed on the Tokyo Stock Exchange. (3) Yahoo! Inc. is a public company listed on
the NASDAQ Global Select Market. (4) Jack Yun MA is the company lead founder and executive chairman. (5) Joseph C. TSAI is a member
of the Alibaba founding team and has served as executive vice-chairman since May 2013. (6) Certain of current employees refer to over
4,000 employees who are selling ADSs during the IPO offering; certain of former employees refer to over 1,000 former employees who are
selling ADSs during the IPO offering; certain of consultants and employee of affiliates as a group refer to the six consultants of the company
and over 900 employees of Alipay and China Smart Logistics who are selling ADSs during the IPO offering.
Source: Company data as of Sept 18, 2014
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Partnership System
The Alibaba Partnership
The Alibaba Partnership currently is comprised of 30 members including 24 members of
Alibabas management, 4 members of management of Small and Micro Financial Services
Company and 1 member of management of China Smart Logistics. Two members of
Alibabas management serve as members of Small and Micro Financial Services Company
as well. Existing partners nominate candidates, who have been serving in Alibaba Group,
its affiliates and/or Alipay for not less than five years, to the partnership committee.
Election of new partners is held annually and requires the approval of at least 75% of all of
the partners.
Removal of partners
Partners retire from the partnership when they cease employment with Alibaba Group, its
affiliates or Alipay, except continuity partners who may remain as partners until they elect
to retire from the partnership, die or are incapacitated or are removed as partners. Any
partner, including continuity partners, may be removed upon the vote of a simple
majority of all partners for violations of certain standards.
Partnership committee
The partnership committee must consist of at least five partners and is currently
comprised of Jack Ma, Joe Tsai, Jonathan Lu, Lucy Peng and Ming Zeng. The Committee is
responsible for administering partner elections and allocating annual cash bonus.
Partnership committee members serve for a term of three years and may serve multiple
terms. Elections of committee members are held once every three years.
Equity interest holding requirement for partners
Alibaba requires each partner to retain at least 60% of the equity interests (including
unvested shares and shares underlying vested and unvested awards) that they held on the
starting date of three-year period. Following the initial three-year holding period and for
so long as he or she remains a partner, a partner is required to retain at least 40% of the
equity interests (including unvested shares and shares underlying vested and unvested
awards) that he or she held on the starting date of the initial three-year holding period. As
of Sept 15, 2014, the partners directly and indirectly hold an aggregate of approximately
349,859,983 ordinary shares (including unvested shares and shares underlying vested
and unvested awards).
page 94 of 130
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27 October 2014
Chart 127: Members of the Alibaba Partnership
Name
Year Joined
Age
Gender
Jingxian Cai ()
37
2000
Principle Engineer
Li CHENG ()
39
2005
38
1999
Luyuan FAN ()
41
2007
Yongxin FANG (
40
2000
Simon Xiaoming HU ( )
44
2005
Risk Manager, SME Loan Business; Chief Risk Officer, Small and Micro Financial Services Company
Fang JIANG ()
40
1999
Peng JIANG ()
41
2000
President, Alibaba Cloud Computing, YunOS and Digital Entertainment; Deputy Chief Technology Officer
Jianhang JIN ()
44
1999
41
2007
Zhenfei LIU ()
42
2006
Jonathan Zhaoxi LU ()
44
2000
Jack Yun MA ()
50
1999
Executive Chairman
Xingjun NI (
37
2003
41
1999
Chief People Officer, Alibaba Group; Chief Executive Officer, Small and Micro Financial Services Company
36
2000
Xiaofeng SHAO ()
48
2005
Timothy A. STEINERT
54
2007
43
2000
Joseph C. TSAI ()
50
1999
Jian WANG ()
51
2008
Shuai WANG ()
40
2003
Sophie Minzhi WU ()
38
2000
Maggie Wei WU ()
46
2007
Eddie Yongming Wu ( )
39
1999
Sara Siying YU ( )
40
2005
Ming ZENG ()
44
2006
41
2004
42
2007
Yu ZHANG ()
44
2004
Alibaba Group
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Chart 128: Alibaba Groups Board of Directors
Name
Age
Position/Title
Jack Yun MA
50
Executive Chairman
Joseph C. TSAI
50
Executive Vice-chairman
Masayoshi SON
57
Director
Jacqueline D. RESES *
44
Director
Jonathan Zhaoxi LU **
44
Director Appointee
Daniel Yong ZHANG **
42
Director Appointee
Independent directors
Chee Hwa TUNG **
77
61
J. Michael EVANS **
57
Jerry YANG **
45
SoftBank has the right to nominate one director to Alibabas board of directors,
provided that its shareholding stays at 15% or above of Alibabas outstanding
shares;
SoftBank will agree to vote its shares in favor of the election of the Alibaba
Partnerships director nominees at each annual general shareholders meeting
and to grant the voting power of any portion of its shareholdings exceeding
30% of Alibabas issued and outstanding ordinary shares to Jack Ma and Joe Tsai
by proxy;
Yahoo will agree to vote its shares in favor of the election of all of the Alibaba
Partnerships director nominees and the SoftBank director nominee at each
annual general shareholders meeting until SoftBanks shareholding declines
below 15% of Alibabas outstanding shares and to grant the voting power over
any shares it owns, up to 121.5 million of Alibabas ordinary shares, to Jack Ma
and Joe Tsai by proxy;
Jack Ma and Joe Tsai will vote their shares and any other shares over which they
hold voting rights in favor of the election of the SoftBank director nominee at
each annual general shareholders meeting until SoftBanks shareholding
declines below 15% of Alibabas outstanding ordinary shares.
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27 October 2014
Alibabas history with Yahoo
In 2005, Yahoo made a strategic investment in Alibaba with a 40% stake (1,047mn
ordinary shares) at combined cash consideration of USD1,000mn and the contribution of
Yahoo China. The equity stake was comprised of USD570mn of existing ordinary shares,
USD70mn of new shares and USD360mn from Softbank. On Oct 24, 2005, Alibaba and
Yahoo entered into the technology and intellectual property license agreement (TIPLA),
later amended and restated in Sept 2012, pursuant to which Alibaba Group made a lump
sum payment of USD550mn to Yahoo and an annual royalty fee of RMB358mn,
RMB592mn and RMB748mn for FY12, FY13 and FY14 respectively. No royalty payment
will be made upon completion of Alibabas IPO.
On May 20, 2012, Alibaba entered into a Share Repurchase and Preference Share Sale
Agreement with Yahoo, which entitles Alibaba to make repurchase of its shares from
Yahoo or cause Yahoo to sell its holding of Alibaba in a qualified IPO of the company.
On Sep 18, 2012, Alibaba repurchased 523mn ordinary shares from Yahoo (50% of
Yahoos initially owned stake) with a total consideration of USD7.1bn, including a
USD6.3bn cash payment and USD800mn worth of Alibaba Group preference shares
(which was redeemed by Alibaba in full in May 2013). Alibaba and Yahoo entered into an
agreement requiring Yahoo to either sell to Alibaba or to public an additional 261.5mn
ordinary shares owned upon a qualified IPO of Alibaba, which was later amended to
208mn in Oct 2013. In July 2014, the Yahoo repurchase agreement was further amended
to reduce the no. of ordinary shares Alibaba is entitled to cause Yahoo to sell to 140mn.
Chart 129: Alibabas history with Yahoo
Date
Milestone
Number of ordinary
Yahoo's stakeholding
of Alibaba
1,047mn
40.0%
1,047mn
40.0%
Alibaba Group.
May, 2012
Sep, 2012
523.5mn
22.5%
(1)
523.5mn
22.5%
(1)
523.5mn
22.4%
(2)
383.6mn
15.4%
(3)
Jul, 2014
Post IPO
completion
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27 October 2014
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27 October 2014
2014 Share and asset purchase agreement (SAPA) & amended Alipay
intellectual property and software technology services agreement
On August 12, 2014, the company entered into a share and asset purchase agreement
(2014 SAPA), and accordingly restructured the relationships with Small and Micro
Financial Services Company and its wholly owned subsidiary Alipay. The 2011 framework
agreement was terminated.
Alibaba Group agreed to dispose of the SME loan business to Small and Micro
Financial Services Company in exchange for cash consideration and annual fees
for seven years. Alibaba Group will receive an annual fee equal to 2.5% of the
average daily balance of SME loans from 2015 to 2017; and fixed annual fee
equal to the 2017 annual fee from 2018 to 2021. The disposition allows the
company to focus on the core e-commerce businesses and eliminates the direct
risks and disadvantages of carrying a loan portfolio on balance sheet, such as the
direct risks of credit defaults, capital adequacy, leverage and regulatory
requirements associated with a loan.
The cap of USD6 bn on the liquidity event payment under the 2011 framework
agreement has been removed. Under the restructured agreement, the Company
will still be entitled to a payment equal to 37.5% of the equity value of Small
and Micro Financial Services Company.
The profit share has been restructured that the base of profits was expanded
from the pre-tax income of only Alipay to the pre-tax income of all of the
businesses of Small and Micro Financial Services Company, while the profit
sharing percentage has been reduced to 37.5% from 49.9%.
Upon a qualified IPO of Small and Micro Financial Services Company, Alibaba is
entitled to receive a payment equal to 37.5% of the equity value of Small and
Micro Financial Services Company until Alibaba acquires a full 33% equity
interest.
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27 October 2014
Age
Jack Yun MA
50
Joseph C. TSAI
50
Jonathan Zhaoxi LU
44
42
Maggie Wei WU
46
Jian WANG
51
Peng Jiang
41
41
Xiaofeng SHAO
48
38
Timothy A. STEINERT
54
44
1999 President
Please see important disclosure information on pages 126 - 130 of this report.
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Initiating Coverage
27 October 2014
Maggie Wei WU ( ) has been the chief financial officer since May 2013. Ms. Wu
served as the deputy chief financial officer from October 2011 to May 2013. Ms. Wu
joined the company in July 2007 as chief financial officer of Alibaba.com and was
responsible for instituting Alibaba.coms financial systems and organization leading up to
its initial public offering in Hong Kong in November of that year, as well as co-leading the
privatization of Alibaba.com in 2012. She was voted best CFO in FinanceAsias annual poll
for Asias Best Managed Companies in 2010. Before joining the company, Ms. Wu was an
audit partner at KPMG in Beijing. In her 15 years with KPMG, she was lead audit partner
for the initial public offerings and audits of several major large-cap Chinese companies
listed in international capital markets and provided audit and advisory services to major
multinational corporations operating in China. Ms. Wu is a member of the Association of
Chartered Certified Accountants (ACCA) and a member of the Chinese Institute of
Certified Public Accountants. She received a bachelors degree in accounting from Capital
University of Economics and Business.
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Financial Statements
Income Statement
We estimate Alibabas total revenue to reach RMB76.8bn, +46.3% YoY, in FY15, and
RMB105bn, +36.7% YoY, in FY16. We currently estimate FY14-17 revenue CAGR of 36%.
We expect total GMV to reach RMB2.4bn in FY15, +44.1% YoY, with Tmall accounting for
37.9% and the rest contributed by Taobao. We estimate FY16 total GMV of RMB3.3bn,
+35.1% YoY.
China commerce: We estimate China commerce sales to grow 50.5% YoY to
RMB67.9bn in FY15, representing 88.4% of total revenue, and 41.1% YoY to RMB95.8bn
in FY16, 91.2% of total revenue, mainly driven by growth in core retail marketplace
businesses.
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Initiating Coverage
27 October 2014
EBITDA: We are modelling non-GAAP EBITDA margin to decline 11.3pcpt YoY to 47.2%
in FY15 and 0.7pcpt YoY to 46.5% in FY16.
Non-operating income from Small and Micro Financial Services Company:
According to the 2014 share and asset purchase agreement in Aug 2014, Alibaba is
entitled to a profit share of 37.5% of the pre-tax income of Small and Micro Financial
Services Company. We estimate total revenue of Small and Micro Financial Services
Company, including Alipays payment processing fee, Yue Bao management fee and
SME loan interest, to reach RMB48.5bn in FY15, +88.8% YoY, and RMB73.1bn in FY16,
+50.7% YoY. Assuming a 12.6% pre-tax income margin and Alibabas 37.5% profit share,
we estimate royalty and software technology service income Alibaba receives from Small
and Micro Financial Services Company to be RMB2.5bn in FY15 and RMB3.4bn in FY16.
Net profit: Overall, we estimate non-GAAP net profit to grow 14.1% YoY to RMB31.5bn
in FY15, implying a net margin decline of 11.6pcpt YoY to 41%. We estimate FY16 nonGAAP net profit of RMB45.1bn, +43.1% YoY, with a net margin of 42.9%, +1.9pcpt YoY.
Please see important disclosure information on pages 126 - 130 of this report.
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27 October 2014
Balance Sheet
As of June 30, 2014, cash and cash equivalents and short-term investments amounted to
RMB57.9bn (USD9.3bn) with RMB62.1bn (USD10bn) debt, resulting in a net debt of
RMB4.2bn (USD682mn). Short-term investments mainly consist of fixed deposits with
maturities between three months and one year.
Alibaba raised a total of USD25bn at an offering price of USD68 with a total of 368mn
shares sold during the IPO in Sept 2014. Alibaba will not receive any proceeds from the
ADS sold by selling shareholders and hence, we estimate Alibaba received a net proceed
of USD10bn (RMB62bn) from the offering. Given the disposal of SME loan business to
Small and Micro Financial Service Company announced in Aug 2014, we expect its loan
receivables as well as current bank borrowing and secured borrowings that are used to
fund the corresponding business will be removed from the balance sheet.
We currently estimate net cash of RMB81.5bn (USD13.1bn) in FY15.
Please see important disclosure information on pages 126 - 130 of this report.
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Initiating Coverage
27 October 2014
Chart 131: Key assumptions (Fiscal year ends on March 31, in RMB mn)
FY2012A FY2013A FY2014A
China Commerce
15,637
29,167
45,132
67,931
95,831
121,329
YoY % change
104.0%
86.5%
54.7%
50.5%
41.1%
26.6%
78.1%
84.5%
86.0%
88.4%
91.2%
91.8%
13,422
26,970
42,832
64,819
92,010
116,954
As % of total revenue
Retail (Taobao, Tmall, Juhuasuan)
YoY % change
100.9%
58.8%
51.3%
42.0%
27.1%
As % of China Commerce
85.8%
92.5%
94.9%
95.4%
96.0%
96.4%
As % of total revenue
67.0%
78.1%
81.6%
84.4%
87.6%
88.5%
9,804
YoY % change
19,697
29,729
39,436
50,107
59,137
100.9%
50.9%
32.7%
27.1%
18.0%
69.4%
60.8%
54.5%
50.6%
73.0%
73.0%
As % total revenue
49.0%
57.1%
56.6%
51.3%
47.7%
44.8%
2,915
6,161
12,023
24,532
41,223
57,272
111.4%
95.1%
104.0%
68.0%
38.9%
Commission
YoY % change
As % China commerce retail
21.7%
22.8%
28.1%
37.8%
44.8%
49.0%
As % total revenue
14.6%
17.8%
22.9%
31.9%
39.2%
43.4%
703
1,112
1,080
851
680
544
58.2%
-2.9%
-21.2%
-20.0%
-20.0%
5.2%
4.1%
2.5%
1.3%
0.7%
0.5%
As % total revenue
3.5%
3.2%
2.1%
1.1%
0.6%
0.4%
Wholesale (1688.com)
2,215
YoY % change
As % of China Commerce
As % of total revenue
International Commerce
YoY % change
As % of total revenue
Retail (AliExpress)
14.2%
2,197
2,300
3,112
3,821
4,375
-0.8%
4.7%
35.3%
22.8%
14.5%
7.5%
5.1%
4.6%
4.0%
3.6%
11.1%
6.4%
4.4%
4.1%
3.6%
3.3%
3,765
4,160
4,851
6,562
7,873
9,182
9.7%
10.5%
16.6%
35.3%
20.0%
16.6%
18.8%
12.1%
9.2%
8.5%
7.5%
6.9%
223
392
938
1,847
2,605
3,402
75.8%
139.3%
96.9%
41.0%
30.6%
37.0%
YoY % change
As % of International Commerce
5.9%
9.4%
19.3%
28.1%
33.1%
As % of total revenue
1.1%
1.1%
1.8%
2.4%
2.5%
2.6%
Wholesale (Alibaba.com)
3,542
3,768
3,913
4,715
5,268
5,780
6.4%
3.8%
20.5%
11.7%
9.7%
63.0%
YoY % change
As % of International Commerce
94.1%
90.6%
80.7%
71.9%
66.9%
As % of total revenue
17.7%
10.9%
7.5%
6.1%
5.0%
4.4%
515
650
773
1,069
1,336
1,604
21.2%
26.2%
18.9%
38.3%
25.0%
20.0%
2.6%
1.9%
1.5%
1.4%
1.3%
1.2%
108
540
1,748
1,250
-71.6%
400.0%
223.7%
-28.5%
-100.0%
0.5%
1.6%
3.3%
1.6%
0.0%
0.0%
20,025
34,517
52,504
76,812
105,040
132,115
68.2%
72.4%
52.1%
46.3%
36.7%
25.8%
123
YoY % change
Orders fulfilled (in mn)
YoY % change
4,182
172
255
380
540
739
39.8%
48.3%
49.0%
42.0%
37.0%
7,224
12,750
22,037
35,361
53,289
72.7%
76.5%
72.8%
60.5%
50.7%
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 132: Key assumptions (Fiscal year ends on March 31, in RMB mn) (contd)
GMV Metrics - China Commerce Retail
Total GMV (in RMB bn)
1,678
2,418
3,268
4,069
62.4%
55.8%
44.1%
35.1%
24.5%
824
1,173
1,502
1,781
2,003
49.8%
42.4%
28.0%
18.6%
12.4%
83.0%
76.5%
69.9%
62.1%
54.5%
49.2%
113
253
505
917
1,487
2,066
123.9%
99.6%
81.5%
62.2%
38.9%
17.0%
23.5%
30.1%
37.9%
45.5%
50.8%
2.02%
2.50%
2.55%
2.68%
2.82%
2.87%
3.0%
3.0%
3.0%
3.4%
3.6%
3.6%
16
79
319
1,068
1,922
2,730
386.9%
300.9%
235.4%
79.9%
42.1%
7.4%
19.0%
44.2%
58.8%
67.1%
389
2,905
19,657
44,402
73,605
YoY % change
Taobao Marketplace GMV
550
YoY % change
% of Total GMV
Tmall GMV
YoY % change
% of Total GMV
Overall monetization rate
Commission rate
Mobile GMV (in RMB bn)
YoY % change
% of Total GMV
Mobile Revenue (in RMB mn)
2.5%
-
YoY % change
646.8%
576.6%
125.9%
65.8%
1.4%
6.8%
30.3%
48.3%
62.9%
0.49%
0.91%
1.84%
2.31%
2.70%
0.5%
0.4%
0.9%
0.5%
0.4%
647
998
1,359
1,350
1,346
1,338
54.3%
36.3%
-0.7%
-0.3%
-0.6%
97.5%
92.6%
81.0%
55.8%
41.2%
32.9%
26,581
39,927
45,162
47,608
43,349
50.2%
13.1%
5.4%
-8.9%
98.6%
93.2%
69.7%
51.7%
37.1%
2.66%
2.94%
3.34%
3.54%
3.24%
2.7%
0.3%
0.4%
0.2%
-0.3%
1,077
YoY % change
As % of China Commerce retail revenue
PC Monetization rate
YoY % change
Non-GAAP expenses as % of revenue
Cost of revenue
30.3%
27.1%
23.3%
32.3%
32.0%
30.0%
12.9%
9.6%
8.2%
10.4%
11.3%
11.8%
14.6%
10.1%
8.3%
8.9%
9.9%
11.7%
9.5%
7.5%
4.3%
3.4%
2.7%
2.2%
6,554
9,719
13,369
27,970
37,413
44,434
48.3%
37.6%
109.2%
33.8%
18.8%
13,953
25,180
40,289
51,979
71,427
92,480
80.5%
60.0%
29.0%
37.4%
29.5%
5,015
10,751
24,920
28,255
37,960
47,703
114.4%
131.8%
13.4%
34.3%
25.7%
6,559
15,802
29,392
34,486
46,382
58,467
140.9%
86.0%
17.3%
34.5%
26.1%
8,649
23,403
31,157
35,777
46,676
85.4%
170.6%
33.1%
14.8%
30.5%
9,154
13,869
27,610
31,489
45,060
58,541
229.5%
51.5%
99.1%
14.1%
43.1%
4,665
YoY % change
Non-GAAP Net Profit
YoY % change
Net Cash (net debt)
20,461
4,776
2,557
81,486
130,309
29.9%
191,652
67.3%
71.8%
74.5%
63.6%
64.4%
66.4%
25.0%
31.1%
47.5%
36.8%
36.1%
36.1%
21.1%
24.7%
44.4%
40.5%
34.1%
35.3%
69.7%
72.9%
76.7%
67.7%
68.0%
70.0%
32.8%
45.8%
56.0%
44.9%
44.2%
44.3%
36.3%
48.1%
58.5%
47.2%
46.5%
46.8%
45.7%
40.2%
52.6%
41.0%
42.9%
44.3%
Capex as % of revenue
10.8%
7.3%
9.1%
12.4%
10.1%
9.1%
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 133: Key assumptions (Fiscal year ends on March 31, in USD mn)
FY2012A FY2013A FY2014A
China Commerce
2,484
4,697
7,260
10,950
YoY % change
15,448
19,558
26.6%
-67.6%
89.0%
54.6%
50.8%
41.1%
As % of total revenue
78.1%
84.5%
86.0%
88.4%
91.2%
91.8%
2,133
4,343
6,890
10,449
14,832
18,853
YoY % change
103.7%
58.6%
51.6%
42.0%
27.1%
As % of China Commerce
85.8%
92.5%
94.9%
95.4%
96.0%
96.4%
As % of total revenue
67.0%
78.1%
81.6%
84.4%
87.6%
88.5%
1,558
YoY % change
3,172
4,782
6,357
8,077
9,533
103.6%
50.8%
32.9%
27.1%
18.0%
73.0%
73.0%
69.4%
60.8%
54.5%
50.6%
As % of total revenue
49.0%
57.1%
56.6%
51.3%
47.7%
44.8%
Commission
463
YoY % change
992
1,934
3,954
6,645
9,232
114.2%
94.9%
104.5%
68.0%
38.9%
21.7%
22.8%
28.1%
37.8%
44.8%
49.0%
As % of total revenue
14.6%
17.8%
22.9%
31.9%
39.2%
43.4%
112
179
174
137
110
88
60.3%
-3.0%
-21.1%
-20.0%
-20.0%
5.2%
4.1%
2.5%
1.3%
0.7%
0.5%
As % of total revenue
3.5%
3.2%
2.1%
1.1%
0.6%
0.4%
352
354
370
502
616
705
0.5%
4.6%
35.6%
22.8%
14.5%
3.6%
Wholesale (1688.com)
YoY % change
As % of China Commerce
14.2%
7.5%
5.1%
4.6%
4.0%
As % of total revenue
11.1%
6.4%
4.4%
4.1%
3.6%
3.3%
598
670
780
1,058
1,269
1,480
YoY % change
15.0%
12.0%
16.5%
35.5%
20.0%
16.6%
As % of total revenue
18.8%
12.1%
9.2%
8.5%
7.5%
6.9%
35
63
151
298
420
548
International Commerce
Retail (AliExpress)
YoY % change
78.2%
139.0%
97.3%
41.0%
30.6%
As % of International Commerce
5.9%
9.4%
19.3%
28.1%
33.1%
37.0%
As % of total revenue
1.1%
1.1%
1.8%
2.4%
2.5%
2.6%
Wholesale (Alibaba.com)
563
607
629
760
849
932
7.8%
3.7%
20.7%
11.7%
9.7%
As % of International Commerce
94.1%
90.6%
80.7%
71.9%
66.9%
63.0%
As % of total revenue
17.7%
10.9%
7.5%
6.1%
5.0%
4.4%
YoY % change
82
105
124
172
215
258
27.1%
27.9%
18.8%
38.6%
25.0%
20.0%
2.6%
1.9%
1.5%
1.4%
1.3%
1.2%
17
87
281
202
-70.2%
406.8%
223.4%
-28.3%
-100.0%
0.5%
1.6%
3.3%
1.6%
0.0%
0.0%
3,182
5,558
8,446
12,382
16,932
21,296
76.4%
74.7%
52.0%
46.6%
36.7%
25.8%
Operation Metrics
Active Buyers
123
YoY % change
Orders fulfilled (in mn)
YoY % change
4,182
172
255
380
540
739
39.8%
48.3%
49.0%
42.0%
37.0%
7,224
12,750
22,037
35,361
53,289
72.7%
76.5%
72.8%
60.5%
50.7%
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 134: Key assumptions (Fiscal year ends on March 31, in USD mn) (contd)
GMV Metrics - China Commerce Retail
Total GMV (in USD bn)
YoY % change
Taobao Marketplace GMV
87
Commission rate
527
656
55.6%
44.4%
35.1%
24.5%
189
242
287
323
42.2%
28.3%
18.6%
12.4%
83.0%
76.5%
69.9%
62.1%
54.5%
49.2%
18
41
81
148
240
333
126.9%
99.4%
81.9%
62.2%
38.9%
YoY % change
% of Total GMV
390
64.6%
133
Tmall GMV
270
51.8%
YoY % change
% of Total GMV
173
17.0%
23.5%
30.1%
37.9%
45.5%
50.8%
2.02%
2.50%
2.55%
2.68%
2.82%
2.87%
3.03%
3.04%
3.04%
3.43%
3.55%
3.55%
Mobile Metrics
Mobile GMV (in USD bn)
YoY % change
% of Total GMV
Mobile Revenue (in USD mn)
2.5%
-
13
51
172
310
440
393.4%
300.5%
236.1%
79.9%
42.1%
7.4%
19.0%
44.2%
58.8%
67.1%
63
467
3,169
7,158
11,865
YoY % change
As % of China Commerce retail revenue
Mobile Monetization rate
YoY % change
PC GMV (in USD bn)
103
YoY % change
% of Total GMV
PC Revenue (in USD mn)
646.0%
578.0%
125.9%
65.8%
1.4%
6.8%
30.3%
48.3%
62.9%
0.49%
0.91%
1.84%
2.31%
2.70%
0.5%
0.4%
0.9%
0.5%
0.4%
161
219
218
217
216
56.3%
36.1%
-0.5%
-0.3%
-0.6%
97.5%
92.6%
81.0%
55.8%
41.2%
32.9%
4,280
6,423
7,280
7,674
6,988
50.1%
13.3%
5.4%
-8.9%
98.6%
93.2%
69.7%
51.7%
37.1%
2.66%
2.94%
3.34%
3.54%
3.24%
2.7%
0.3%
0.4%
0.2%
-0.3%
YoY % change
As % of China Commerce retail revenue
PC Monetization rate
YoY pcpt change
Non-GAAP expenses as % of revenue
Cost of Revenue
30.3%
27.1%
23.3%
32.3%
32.0%
30.0%
12.9%
9.6%
8.2%
10.4%
11.3%
11.8%
14.6%
10.1%
8.3%
8.9%
9.9%
11.7%
9.5%
7.5%
4.3%
3.4%
2.7%
2.2%
1,041
1,565
2,151
4,509
6,031
7,163
50.3%
37.4%
109.6%
33.8%
18.8%
2,217
4,055
6,481
8,379
11,514
14,908
82.9%
59.8%
29.3%
37.4%
29.5%
797
1,731
4,009
4,555
6,119
7,690
117.3%
131.6%
13.6%
34.3%
25.7%
2,545
4,728
5,559
7,477
9,425
1,042
YoY % change
Net Profit
144.2%
85.8%
17.6%
34.5%
26.1%
741
1,393
3,765
5,022
5,767
7,524
87.9%
170.3%
33.4%
14.8%
30.5%
1,454
2,233
4,441
5,076
7,263
9,437
YoY % change
Non-GAAP Net Profit
-47.6%
53.6%
98.9%
14.3%
43.1%
29.9%
YoY % change
67.3%
71.8%
74.5%
63.6%
64.4%
66.4%
25.0%
31.1%
47.5%
36.8%
36.1%
36.1%
21.1%
24.7%
44.4%
40.5%
34.1%
35.3%
69.7%
72.9%
76.7%
67.7%
68.0%
70.0%
32.8%
45.8%
56.0%
44.9%
44.2%
44.3%
36.3%
48.1%
58.5%
47.2%
46.5%
46.8%
45.7%
40.2%
52.6%
41.0%
42.9%
44.3%
Capex as % of revenue
10.8%
7.3%
9.1%
12.4%
10.1%
9.1%
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 135: Income statement (Fiscal year ends on March 31, in RMB mn)
FY2012A FY2013A FY2014A
Total Revenue (in RMB mn)
34,517
68.2%
72.4%
52.1%
46.3%
36.7%
25.8%
6,072
9,337
12,215
24,832
33,613
39,634
13,953
25,180
40,289
51,979
71,427
92,480
69.7%
72.9%
76.7%
67.7%
68.0%
70.0%
5,015
10,751
24,920
28,255
37,960
47,703
279.3%
114.4%
131.8%
13.4%
34.3%
25.7%
25.0%
31.1%
47.5%
36.8%
36.1%
36.1%
2,579
3,300
4,298
8,012
11,848
15,569
2,922
3,493
4,356
6,863
10,390
15,495
YoY% change
Non-GAAP Cost of Revenue
52,504
20,025
76,812
105,040
132,115
1,893
2,585
2,243
2,618
2,807
2,950
6,559
15,802
29,392
34,486
46,382
58,467
173.5%
140.9%
86.0%
17.3%
34.5%
26.1%
32.8%
45.8%
56.0%
44.9%
44.2%
44.3%
715
805
1,339
1,755
2,468
3,388
7,274
16,607
30,731
36,242
48,850
61,855
141.7%
128.3%
85.0%
17.9%
34.8%
26.6%
36.3%
48.1%
58.5%
47.2%
46.5%
46.8%
Other Income
Interest and investment income
258
39
1,648
8,863
4,648
6,300
604
455
1,210
2,612
4,648
6,300
-346
-416
438
6,251
Interest expenses
-68
-1,572
-2,195
-2,867
-3,120
-3,120
536
-1,117
-985
-255
1,528
3,180
Others
327
894
2,429
2,803
4,015
5,442
300
617
665
184
27
277
1,764
5,532
10,112
-842
-1,457
-25
Interest income
Others
Net income before income tax and share of results of equity investees
Income Tax
Share of results of equity investees
Net (loss)/profit
Net income attributable to noncontrolling interests
Net (loss)/profit attributable to Alibaba Group (in RMB mn)
YoY% change
Net margin
Non-GAAP net profit (in RMB mn)
YoY% change
2,503
3,445
4,696
116
571
747
26,802
37,054
43,503
56,325
-3,196
-4,907
-6,525
-8,449
-6
-203
-990
-1,200
-1,200
4,665
8,649
23,403
31,157
35,777
46,676
-437
-117
-88
-34
4,228
8,532
23,315
31,123
35,777
257.4%
101.8%
173.3%
33.5%
15.0%
46,676
30.5%
21.1%
24.7%
44.4%
40.5%
34.1%
35.3%
9,154
13,869
27,610
31,489
45,060
58,541
229.5%
51.5%
99.1%
14.1%
43.1%
29.9%
45.7%
40.2%
52.6%
41.0%
42.9%
44.3%
0.27
0.60
1.66
2.06
2.32
3.02
0.27
0.58
1.61
2.04
2.32
3.02
0.59
0.97
1.96
2.08
2.92
3.79
3.63
5.81
11.84
12.78
18.09
23.50
0.58
0.93
1.90
2.06
2.92
3.79
245.5%
62.1%
103.7%
8.1%
41.6%
29.9%
2,479
2,294
2,266
2,441
2,491
2,491
2,522
2,389
2,332
2,464
2,491
2,491
YoY% change
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 136: Income statement (Fiscal year ends on March 31, in USD mn)
FY2012A FY2013A FY2014A
Total Revenue (in USD mn)
3,182
5,558
8,446
12,382
16,932
21,296
68.2%
72.4%
52.1%
46.3%
36.7%
25.8%
965
1,504
1,965
4,003
5,418
6,389
2,217
4,055
6,481
8,379
11,514
14,908
69.7%
72.9%
76.7%
67.7%
68.0%
70.0%
797
1,731
4,009
4,555
6,119
7,690
279.3%
114.4%
131.8%
13.4%
34.3%
25.7%
YoY% change
Non-GAAP Cost of Revenue
25.0%
31.1%
47.5%
36.8%
36.1%
36.1%
Operating Margin
410
531
691
1,292
1,910
2,510
464
562
701
1,106
1,675
2,498
301
416
361
422
452
476
1,042
2,545
4,728
5,559
7,477
9,425
173.5%
140.9%
86.0%
17.3%
34.5%
26.1%
32.8%
45.8%
56.0%
44.9%
44.2%
44.3%
114
130
215
283
398
546
1,156
2,674
4,944
5,842
7,874
9,971
141.7%
128.3%
85.0%
17.9%
34.8%
26.6%
36.3%
48.1%
58.5%
47.2%
46.5%
46.8%
41
265
1,429
749
1,016
96
73
195
421
749
1,016
-55
-67
70
1,008
-11
-253
-353
-462
-503
-503
85
-180
-158
-41
246
513
Others
52
144
391
452
647
877
48
99
107
30
45
284
403
555
757
19
92
120
4
-
879
1,628
4,311
5,973
7,012
9,079
-134
-235
-514
-791
-1,052
-1,362
-4
-1
-33
-160
-193
-193
741
1,393
3,765
5,022
5,767
7,524
-69
-19
-14
-5
672
1,374
3,751
5,017
5,767
7,524
257.4%
101.8%
173.3%
33.5%
15.0%
30.5%
21.1%
24.7%
44.4%
40.5%
34.1%
35.3%
1,454
2,233
4,441
5,076
7,263
9,437
229.5%
51.5%
99.1%
14.1%
43.1%
29.9%
45.7%
40.2%
52.6%
41.0%
42.9%
44.3%
0.27
0.60
1.66
2.06
2.32
3.02
0.27
0.58
1.61
2.04
2.32
3.02
0.59
0.97
1.96
2.08
2.92
3.79
2.06
0.58
0.93
1.90
2.92
3.79
245.5%
62.1%
103.7%
8.1%
41.6%
29.9%
2,479
2,294
2,266
2,441
2,491
2,491
2,522
2,389
2,332
2,464
2,491
2,491
YoY% change
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 137: Balance sheet (Fiscal year ends on March 31, in RMB mn)
RMB mn
Current asset
Cash and cash equivalents
16,857
30,396
33,045
124,549
173,372
234,715
Short-term investments
4,887
2,290
10,587
5,970
5,970
5,970
3,312
3,687
4,921
6,118
6,118
6,118
581
4,426
13,159
Investment securities
593
629
1,442
1,737
1,737
1,737
1,669
1,734
4,679
8,449
11,554
14,533
155
135
269
768
1,050
1,321
1,514
1,599
4,410
7,681
10,504
13,211
27,899
43,162
67,833
146,824
198,752
263,073
2,463
3,808
5,581
8,616
12,535
17,065
1,642
1,555
17,666
24,443
24,443
24,443
Investment securities
248
242
3,023
3,190
3,190
3,190
355
334
1,906
6,208
8,547
9,946
1,701
1,895
1,660
1,522
1,497
1,581
11,436
11,294
11,793
29,289
29,289
29,289
1,466
1,496
2,087
3,053
4,175
5,251
19,311
20,624
43,716
76,321
83,677
90,766
Total asset
47,210
63,786
111,549
223,145
282,428
353,839
0
Current liabilities
Current bank borrowings
Secured borrowings
Accrued expenses, accounts payable and other liabilities
Accounts payable
Accrued expenses and other liabilities
1,283
3,350
1,100
2,098
9,264
4,659
8,961
11,887
17,743
23,949
29,858
198
697
649
844
840
793
4,461
8,264
11,238
16,899
23,109
29,065
375
259
1,267
1,854
2,535
3,188
339
1,315
2,659
3,890
5,320
6,691
Merchant deposits
745
3,083
4,711
6,892
9,425
11,854
4,350
4,929
6,496
8,449
11,554
14,533
66,124
11,751
23,995
37,384
38,828
52,783
Deferred revenue
529
389
428
538
735
925
413
643
2,136
2,136
2,136
2,136
5,191
0
49,033
22,462
30,711
49,033
49,033
104
60
72
1,997
2,731
3,435
1,046
28,745
33,347
53,704
54,635
55,529
Total Liabilities
12,797
52,740
70,731
92,532
107,418
121,652
34,413
11,046
40,818
130,613
175,010
232,187
47,210
63,786
111,549
223,145
282,428
353,839
Other liabilities
Total non-current liabilities
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 138: Balance sheet (Fiscal year ends on March 31, in USD mn)
USD mn
Current asset
Cash and cash equivalents
2,678
4,895
5,316
20,077
27,947
37,835
Short-term investments
776
369
1,703
962
962
962
526
594
792
986
986
986
92
713
2,117
Investment securities
94
101
232
280
280
280
265
279
753
1,362
1,863
2,343
25
22
43
124
169
213
241
257
709
1,238
1,693
2,130
4,433
6,950
10,912
23,667
32,038
42,406
391
613
898
1,389
2,021
2,751
261
250
2,842
3,940
3,940
3,940
39
39
486
514
514
514
1,603
Investment securities
Intangible assets, net
Land use rights, net
Goodwill
Prepayment, receivables and other assets
56
54
307
1,001
1,378
270
305
267
245
241
255
1,817
1,819
1,897
4,721
4,721
4,721
233
241
336
492
673
847
3,068
3,321
7,032
12,303
13,488
14,631
Total asset
7,501
10,271
17,944
35,970
45,527
57,038
204
539
177
338
1,490
740
1,443
1,912
2,860
3,861
4,813
Current liabilities
Current bank borrowings
Secured borrowings
Accrued expenses, accounts payable and other liabilities
Accounts payable
Accrued expenses and other liabilities
31
112
104
136
135
128
709
1,331
1,808
2,724
3,725
4,685
60
42
204
299
409
514
54
212
428
627
858
1,079
Merchant deposits
118
496
758
1,111
1,519
1,911
691
794
1,045
1,362
1,863
2,343
1,867
3,864
6,014
6,259
8,508
10,659
Total current-liabilities
Deferred revenue
84
63
69
87
119
149
66
104
344
344
344
344
836
3,617
4,940
7,904
7,904
7,904
Other liabilities
17
10
12
322
440
554
166
4,629
5,364
8,657
8,807
8,951
Total Liabilities
2,033
8,493
11,378
14,916
17,315
19,610
5,468
1,779
6,566
21,054
28,211
37,428
7,501
10,271
17,944
35,970
45,527
57,038
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 139: Cash flow statement (Fiscal year ends on March 31, in RMB mn)
FY2012A FY2013A FY2014A
Net income (loss)
4,665
8,649
23,403
31,157
35,777
46,676
1,254
1,259
2,844
5,905
7,420
9,300
1,269
715
805
1,339
1,755
2,468
3,388
(24)
(68)
138
(80)
(90)
264
245
21
(387)
(8)
(17,496)
155
130
315
572
1,862
2,564
135
175
44
25
203
990
1,200
1,200
150
104
1,466
120
442
0
0
(113)
(974)
(1,329)
(1,197)
Loan receivables
(226)
(2,828)
(9,175)
13,159
(240)
(354)
(3,567)
(4,737)
230
(116)
1,008
587
681
653
976
1,344
1,231
1,430
1,371
1,332
3,657
3,992
7,781
6,940
6,613
583
2,338
1,628
2,181
2,533
2,429
94
(4,227)
0
(4,054)
128
437
1,606
2,063
3,303
3,168
9,275
14,476
26,379
43,951
59,387
73,308
3,728
2,589
4,617
(2,108)
334
(8,304)
199
167
(12)
(147)
(508)
(60)
(2,972)
1,966
26
372
(9,219)
(10,143)
(11,437)
(1,419)
(1,457)
(1,491)
(307)
(420)
(528)
301
(732)
(46)
551
(305)
(344)
(212)
(761)
(452)
(16,468)
74
167
(3,285)
(20)
(1,046)
(52)
(749)
(191)
(462)
(125)
475
(54)
545
(1,406)
(76)
89
(6,777)
0
9,571
13,539
2,649
59,701
91,504
48,823
61,343
7,286
16,857
30,396
33,045
124,549
173,372
16,857
30,396
33,045
124,549
173,372
234,715
8,752
19,745
32,269
21,574
49,243
61,871
FCF/share
3.47
8.26
13.84
8.75
19.77
24.84
FCF Yield
0.6%
1.5%
2.5%
1.6%
3.6%
4.5%
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 140: Cash flow statement (Fiscal year ends on March 31, in USD mn)
FY2012A FY2013A FY2014A
Net income (loss)
741
1,393
199
0
114
3,765
5,022
5,767
7,524
203
457
952
1,196
1,499
204
130
215
283
398
546
(4)
(11)
(2,820)
22
(13)
(14)
42
39
(1)
(62)
25
21
51
92
300
413
21
28
33
160
193
193
24
17
236
19
71
Restricted cash
(18)
(157)
(214)
Loan receivables
(36)
(455)
(1,476)
(38)
(57)
(574)
(193)
2,121
(764)
0
(681)
0
(654)
37
(19)
162
95
110
105
15
157
216
198
230
221
212
589
642
1,254
1,119
1,066
Merchant deposits
93
376
262
352
408
392
20
70
258
333
532
511
1,474
2,331
4,243
7,085
9,573
11,817
592
417
744
(335)
54
32
27
(2)
(24)
(81)
(10)
(478)
(74)
312
(119)
(168)
(528)
(1,486)
(1,635)
(1,844)
(225)
(235)
(240)
(50)
(68)
(85)
(118)
(1,336)
60
48
(30)
(8)
(3)
89
(7)
(48)
(55)
(34)
(121)
(73)
(2,649)
12
27
(20)
88
75
(9)
(226)
(12)
14
(1,092)
0
(1,958)
1,506
9,624
14,750
7,870
9,888
(16)
(1,703)
(5,308)
(1,929)
1,521
2,180
426
1,158
2,714
4,890
5,327
20,077
27,947
2,678
4,895
5,316
20,077
27,947
37,835
9,973
1,391
3,180
5,191
3,478
7,938
FCF/share
0.55
1.33
2.23
1.41
3.19
4.00
FCF Yield
0.6%
1.5%
2.5%
1.6%
3.6%
4.5%
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Appendix
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
We estimate total revenue to reach RMB16bn, +46.3% YoY, driven by continued solid
growth in China commerce, as well as rapid growth of interest income from micro loans.
We expect China commerce retail revenue to grow 48.6% YoY to RMB12.8bn, driven by
strong commission revenue growth.
We expect total GMV to reach RMB541bn in FY2Q15, +44.5% YoY, driven by rapid
growth of Tmall GMV.
We forecast Alibaba Group to post a RMB10.6bn non-GAAP gross profit and RMB5.4bn
non-GAAP operating profit in FY2Q15, implying a non-GAAP gross margin of 66%,
-8.7pcpt QoQ, and non-GAAP operating margin of 43.7%, -8pcpt QoQ.
FY2Q15 non-GAAP net income should reach RMB6.4bn, with a net margin of 40.2%,
-6.2pcpt QoQ, based on our estimates.
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 141: FY2Q15 (CY3Q14) results preview (in RMB mn)
FY1Q14A FY2Q14A FY3Q14A FY4Q14A
Total Revenue (in RMB mn)
10,778
FY1Q15A
FY2Q15E
10,950
18,745
12,031
15,771
16,021
FY3Q15E FY4Q15E
27,720
17,300
-37.6%
QoQ % Change
24.3%
1.6%
71.2%
-35.8%
31.1%
1.6%
73.0%
YoY % Change
58.7%
46.8%
61.7%
38.7%
46.3%
46.3%
47.9%
43.8%
8,051
7,949
14,574
8,561
11,186
9,868
17,455
10,332
QoQ % Change
25.9%
-1.3%
83.3%
-41.3%
30.7%
-11.8%
76.9%
-40.8%
YoY % Change
73.7%
56.4%
67.9%
33.8%
38.9%
24.1%
19.8%
20.7%
74.7%
72.6%
77.7%
71.2%
70.9%
61.6%
63.0%
59.7%
2,576.0
2,650.4
3,903.6
3,085.0
3,992.0
5,447.3
9,424.7
5,968.4
8,202
8,300
14,841
8,946
11,779
10,574
18,295
11,331
Gross profit
Gross margin
Non-GAAP cost of revenue
Non-GAAP Gross profit
QoQ % Change
26.9%
1.2%
78.8%
-39.7%
31.7%
-10.2%
73.0%
-38.1%
YoY % Change
73.8%
58.9%
69.2%
38.4%
43.6%
27.4%
23.3%
26.7%
76.1%
75.8%
79.2%
74.4%
74.7%
66.0%
66.0%
65.5%
5,420
5,248
8,801
5,451
6,844
5,439
10,280
5,693
QoQ % Change
21.7%
-3.2%
67.7%
-38.1%
25.6%
-20.5%
89.0%
-44.6%
YoY % Change
131.1%
-574.5%
73.9%
22.4%
26.3%
3.6%
16.8%
4.4%
50.3%
47.9%
47.0%
45.3%
43.4%
33.9%
37.1%
32.9%
Operating margin
Non-GAAP Operating Profit
5,851
6,195
10,852
6,494
8,151
7,001
11,809
7,525
QoQ % Change
24.4%
5.9%
75.2%
-40.2%
25.5%
-14.1%
68.7%
-36.3%
YoY % Change
120.0%
115.1%
95.2%
38.1%
39.3%
13.0%
8.8%
15.9%
54.3%
56.6%
57.9%
54.0%
51.7%
43.7%
42.6%
43.5%
4,384
4,883
8,266
5,543
12,344
4,739
9,003
4,977
4.5%
11.4%
69.3%
-32.9%
122.7%
-61.6%
90.0%
-44.7%
154.6%
-413.0%
104.4%
32.1%
181.6%
-2.9%
8.9%
-10.2%
40.7%
44.6%
44.1%
46.1%
78.3%
29.6%
32.5%
28.8%
4,583
5,943
10,386
6,699
7,317
6,441
10,705
7,027
-0.2%
29.7%
74.8%
-35.5%
9.2%
-12.0%
66.2%
-34.4%
109.8%
130.9%
129.9%
45.8%
59.7%
8.4%
3.1%
4.9%
42.5%
54.3%
55.4%
55.7%
46.4%
40.2%
38.6%
40.6%
1.99
2.55
4.45
2.87
3.07
2.59
4.30
2.82
3.4%
28.2%
74.8%
-35.5%
6.8%
-15.8%
66.2%
-34.4%
117.5%
136.6%
135.5%
49.4%
54.4%
1.5%
-3.5%
-1.8%
0.32
0.41
0.72
0.46
0.49
0.42
0.69
0.45
3.3%
28.2%
74.8%
-35.5%
7.1%
-15.8%
66.2%
-34.4%
117.2%
136.3%
135.3%
49.2%
54.7%
1.7%
-3.3%
-1.6%
QoQ % Change
YoY % Change
Non-GAAP EPADS, diluted (in USD)
QoQ % Change
YoY % Change
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Chart 142: FY2Q15 (CY3Q14) results preview (in USD mn)
FY1Q14A FY2Q14A FY3Q14A FY4Q14A
Total Revenue (in USD mn)
1,734
FY1Q15A
1,761
3,015
1,935
2,542
FY2Q15E
FY3Q15E FY4Q15E
2,583
4,468
2,789
-37.6%
QoQ % Change
24.1%
1.6%
71.2%
-35.8%
31.4%
1.6%
73.0%
YoY % Change
58.5%
46.7%
61.5%
38.6%
46.6%
46.6%
48.2%
44.1%
438.7
482.8
671.0
558.2
739.1
991.8
1,654.6
1,123.2
1,295
1,279
2,344
1,377
1,803
1,591
2,814
1,665
Cost of revenue
Gross profit
QoQ % Change
25.7%
-1.3%
83.3%
-41.3%
30.9%
-11.8%
76.9%
-40.8%
YoY % Change
73.5%
56.2%
67.7%
33.7%
39.2%
24.4%
20.0%
20.9%
Gross margin
74.7%
72.6%
77.7%
71.2%
70.9%
61.6%
63.0%
59.7%
414.4
426.4
628.0
496.3
643.5
878.1
1,519.2
962.1
1,319
1,335
2,387
1,439
1,899
1,705
2,949
1,827
QoQ % Change
26.7%
1.2%
78.8%
-39.7%
31.9%
-10.2%
73.0%
-38.1%
YoY % Change
73.6%
58.7%
69.0%
38.2%
43.9%
27.7%
23.5%
26.9%
76.1%
75.8%
79.2%
74.4%
74.7%
66.0%
66.0%
65.5%
872
844
1,416
877
1,103
877
1,657
918
QoQ % Change
21.6%
-3.2%
67.7%
-38.1%
25.8%
-20.5%
89.0%
-44.6%
YoY % Change
130.9%
-574.0%
73.8%
22.3%
26.5%
3.8%
17.0%
4.6%
Operating margin
50.3%
47.9%
47.0%
45.3%
43.4%
33.9%
37.1%
32.9%
941
997
1,746
1,045
1,314
1,129
1,904
1,213
QoQ % Change
24.3%
5.9%
75.2%
-40.2%
25.8%
-14.1%
68.7%
-36.3%
YoY % Change
119.7%
114.9%
95.0%
38.0%
39.6%
13.2%
9.0%
16.1%
54.3%
56.6%
57.9%
54.0%
51.7%
43.7%
42.6%
43.5%
705
786
1,330
892
1,990
764
1,451
802
4.3%
11.4%
69.3%
-32.9%
123.2%
-61.6%
90.0%
-44.7%
154.3%
-412.7%
104.1%
31.9%
182.2%
-2.7%
9.1%
-10.0%
40.7%
44.6%
44.1%
46.1%
78.3%
29.6%
32.5%
28.8%
737
956
1,671
1,078
1,179
1,038
1,726
1,133
-34.4%
-0.3%
29.7%
74.8%
-35.5%
9.5%
-12.0%
66.2%
109.6%
130.7%
129.7%
45.7%
60.0%
8.6%
3.3%
5.1%
42.5%
54.3%
55.4%
55.7%
46.4%
40.2%
38.6%
40.6%
1.99
2.55
4.45
2.87
3.07
2.59
4.30
2.82
3.4%
28.2%
74.8%
-35.5%
6.8%
-15.8%
66.2%
-34.4%
117.5%
136.6%
135.5%
49.4%
54.4%
1.5%
-3.5%
-1.8%
0.32
0.41
0.72
0.46
0.49
0.42
0.69
0.45
3.3%
28.2%
74.8%
-35.5%
7.1%
-15.8%
66.2%
-34.4%
117.2%
136.3%
135.3%
49.2%
54.7%
1.7%
-3.3%
-1.6%
YoY % Change
QoQ % Change
YoY % Change
Non-GAAP EPADS, diluted (in USD)
QoQ % Change
YoY % Change
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
O2O
Digital Media
and
Entertainment
Date
June,
2014
Target
UCWeb
(Private)
Apr,
2014/
Apr,
2013
Weibo
(NASDAQ: WB)
Apr,
2014/
Mar,
2014
TangoMe
(Private)
Jul,
2014/
May,
2013
Autonavi
(Private;
delisted from
NASDAQ in July
2014)
Deal Details
Alibaba acquired 66%
economic interest in
UCWeb over several
rounds of investments,
the last of which
completed in April
2014. It then acquired
all remaining shares for
USD458mn in cash
plus restricted shares
and RSUs in the
aggregate number of
12.3mn.
USD1,035mn in
aggregate for approx.
30% stake on a fullydiluted basis. (Initial
investment of
USD586mn for 18%
stake, followed by
USD449mn in April
2014 with Alibaba
exercising its option to
increase its stake upon
Weibo's IPO)
USD217mn in
aggregate for 20%
stake on a fully-diluted
basis
USD1,326mn in
aggregate for 100%
stake (Initial
investment:
USD294mn for 28%
stake; Follow-on
investment:
USD1,032mn for the
remaining stake)
Jul, 2014 Intime Retail
HKD5,368mn
Group (" (USD692.5mn) for
9.9% equity stake and
", HKSE:
convertible bonds
1833 HK)
which would increase
Alibaba's stake to 26%
upon conversion.
Implied Strategies
- Enhance mobile offerings beyond eCommerce, such as general mobile
search
-Access UCWeb's large base of mobile
users and offer existing user base with
additional mobile solutions
RMB1.2bn
- One of the most popular soccer teams
(USD192.9mn) for 50% in China and China's first ever winner of
stake
the Asian Football Confederation
Champions League Cup.
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Table 4: Alibabas M&A activities disclosed by company
Business area
Logistics
Date
May,
2014
Target
Youku Tudou
(NYSE: YOKU)
June,
2014
Alibaba
Pictures
(formerly
known as
ChinaVision,
HKSE: 1060
HK)
Apr,
2014
Wasu*
("", SZSE:
000156 CH)
Mar,
2014
Haier
Electronics
Group
(HKSE: 1169
HK)
Deal Details
USD1.09bn for 16.5%
stake on a fully-diluted
basis (Yunfeng Capital
invested USD132mn to
purchase an additional
2% stake)
Please see important disclosure information on pages 126 - 130 of this report.
Implied Strategies
-Advance "live @ Alibaba" vision of
making digital media entertainment
available to customers anywhere,
anytime
-Enhance the quality of services to users
and improve targeted marketing for
online marketing customers
BABA
Initiating Coverage
27 October 2014
Table 4: Alibabas M&A activities disclosed by company
Business area
Date
May,
2013
Target
Zhejiang
Cainiao Supply
Chain
Management
Co, Ltd ("")
or China Smart
Logistics
(Private)
e-Commerce
infrastructure
and service
May,
2014/
Nov,
2010
Shenzhen
OneTouch
Business
Services ("
",
private)
Overseas
Mar,
2014
ShopRunner
(Private)
Healthcare
Apr,
2014
CITIC 21
(HKSE: 0241
HK)
Deal Details
RMB2.4bn
(USD385.9mn) for 48%
stake in the Joint
Venture with Intime
Group, Fosun
International and other
five major express
delivery companies.
(Alibaba has invested
RMB1.68bn as of Mar
2014, and will invest
the remaining capital
over a two-year period)
Approx. RMB1.35bn
(USD217mn) in
aggregate for 100%
stake acquisition.
(Initial investment:
approx. RMB560mn for
65% stake; Follow-on
investment:
RMB790mn for the
remaining stake.)
USD202mn for 39%
stake interest
Implied Strategies
-Enhance user experience by offering
efficient logistics and delivery services.
-China Smart Logistics plans to build a
network of key logistics hubs across
China, including distribution centers,
warehouses and other supply chain
facilities, which could support the
delivery of over 100mn packages per
day to consumers' doorsteps anywhere
in China within 24 hours in the long
term.
-OneTouch is a provider of
comprehensive export-related services
tailored to the needs of small business in
China.
-Shenzhen OneTouch was ranked No.5
in terms of exported value among
general trade enterprises in 2013 in
China, behind Huawei and ZTE,
according to China National Customs
Information Center.
-A company that operates a membersonly service for online shoppers in US,
offering free 2-day shipping with no
minimum order.
-The e-Commerce platform has more
than 1mn members and offers two-day
delivery for retailers, according to Wall
Street Journal.
HKD932mn
-A leading developer of product
(USD120.3mn) for 38% identification, authentication and
stake interest. (Yunfeng tracking systems for pharmaceuticals and
Capital acquired
medical products in China.
another 16% stake in
-Total revenue grew 279% YoY to
CITIC 21 in the amount HKD60.2mn for the year ended Mar 31,
of HKD395mn)
2014. Total profit grew by 389.4% YoY
to HKD9.6mn for the year ended Mar 31,
2014.
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Table 5: Alibabas M&A activities reported by public news sources
Business area
Mobile
O2O
Date
Oct, 2014
Target
Peel
Technologies
(Private)
Deal Details
Strategic investment of
USD50mn
Dec, 2013
LBE Security
Master ("LBE
", private)
Undisclosed
Oct, 2013
Quixey
(Private)
Apr, 2013
Umeng ("",
private)
Oct, 2012
MoMo
("", private)
Apr, 2014
Lyft (Private)
Strategic investment,
Alibaba led a
USD100mn funding
Nov, 2012
Jul, 2011
Meituan
("", private)
Strategic investment
(approx. 10-15% stake,
according to founder)
Please see important disclosure information on pages 126 - 130 of this report.
Implied Strategies
-Help Alibaba to extend to Media
and Entertainment areas.
-Gain access to Smart Home area
- Complement offerings of
Alibaba's "Juhuasuan" groupbuying site, which mostly offers
tangible products, with
Meituan's focus on service
instead
- Acquire additional users outside
of Alibaba's internal e-commerce
ecosystem
BABA
Initiating Coverage
27 October 2014
Table 5: Alibabas M&A activities reported by public news sources
Business area
Date
Oct, 2006
Target
Koubei
("", private)
Deal Details
Strategic investment,
no details disclosed
Digital Media
and
Entertainment
Jun, 2014
Huxiu.com (1)
(, private)
Strategic investment
Jul, 2014
Kabam
(Private)
Shanghai Yunxi, a
company fully owned
by Small and Micro
Financial Services
Company (formerly
known as Zhejiang
Alibaba e-Commerce)
Strategic investment of
USD120mn
Jun, 2014
21st Century
Media ("21
", private)
Strategic investment of
RMB500mn
(USD80.4mn)
Dec,
2013/Oct,
2012
Ttpod ("
", private)
Strategic investment,
no details disclosed
Jan, 2013
Xiami
("", private)
Acquisition, no details
disclosed
Sept, 2013
Kanbox
("", private)
Acquisition, no details
disclosed
e-Commerce
infrastructure
and service
May, 2011
Jan, 2010
Sept, 2009
Strategic investment
with initial investment
of RMB3mn
(USD0.48mn), and
further investment
undisclosed
CNZZ
Acquisition of
(Private)
USD15mn
Baozun
(" Strategic investment,
no details disclosed
", private)
net.cn
("", private)
Acquisition of
RMB540mn
(USD86.8mn)
Please see important disclosure information on pages 126 - 130 of this report.
Implied Strategies
- Complement Alibaba's ecommerce portfolio with the rich
community contents of Koubei
- Merged Koubei into Taobao in
pursuance of the "Big Taobao"
strategy in August 2009
-Gain access to media content
BABA
Initiating Coverage
27 October 2014
Table 5: Alibabas M&A activities reported by public news sources
Business area
Overseas
Date
Jan, 2014
Target
1 stdibs
(Private)
Online Travel
Sept, 2014
Beijing Shiji
Information
Technology ("
",
SZSE: 002153
CH)
Mar, 2014
Strategic investment,
no details disclosed
Mar, 2013
117go.com
("",
private)
Strategic investment,
no details disclosed
Online
Education
Feb, 2014
TutorGroup
(Private)
Financial
Services
Oct, 2013
Jointly invested
USD100mn with
Temasek and Qiming
Venture Partners
RMB1.18bn
(USD189.7mn)
invested through
Zhejiang Alibaba eCommerce for 51%
stake interest
-A mobile travel journal and experiencesharing app with total users of 20mn as of
May, 2014, according to mgmt.
-It launched a mobile commerce product
Taozailushang () recently, with
mobile daily transaction volume
exceeding RMB2mn.
An online education platform for
language learning.
Apr, 2014
Hundsun (3)
("",
SHSE: 600570
CH)
Jul, 2013
Deal Details
Strategic investment of
USD15mn
Implied Strategies
-Enable Chinese consumers to
shop for authentic American
products directly from U.S.
-Enhance Alibaba's presence in
overseas e-Commerce market
-Data connection between
Taobao Travel and hotel
information system, as well as
Taodiandian and restaurant
enterprise management system.
-Help Taobao Travel to build a
closed-loop O2O ecosystem in
hotel and F&B industries.
-In-depth cooperation in hotel
system integration, after-sales,
membership and payment
service.
-Provide users with high quality
travel-related services and
content
-Complement own travelbooking website Taobao Travel
with high-quality outbound
travel information and service
-Capture potential synergy
among travel, local lifestyle
service and payment to amass
big data and explore
opportunities in O2O
-Capture potential synergy
among travel, local lifestyle
service and payment to amass
big data and explore
opportunities in O2O
Source: Bloomberg, Wall Street Journal, Sina News, NetEase News, Tech in Asia, Tech Crunch, Tech Web and Tencent News.
Note: (1) Investment in Huxiu was completed through Shanghai Yunxi, a company fully owned by Small and Micro Financial Services
Company (2) Investment in Tian Hong was done through Small and Micro Financial Services; (3) Investment in Hundsun was completed
through Zhejiang Rongxin Network Technology, a company owned by Jack Ma and Simon Xie with 99.1% and 0.9% stake, respectively
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Company Description
Alibaba is the largest online and mobile commerce company in the world in terms of gross merchandise volume in 2013, according to
industry sources. The company operates its marketplaces as a platform for third parties, and does not engage in direct sales, compete with
its merchants or hold inventory.
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I, Cynthia Meng, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and
subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in this research report.
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subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in this research report.
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subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations
or views expressed in this research report.
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Registration of non-US analysts: Karen Chan is employed by Jefferies Hong Kong Limited, a non-US affiliate of Jefferies LLC and is not registered/
qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may
not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances
and trading securities held by a research analyst.
Registration of non-US analysts: Nick Wang is employed by Jefferies Hong Kong Limited, a non-US affiliate of Jefferies LLC and is not registered/
qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may
not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances
and trading securities held by a research analyst.
Registration of non-US analysts: Qin Wang is employed by Jefferies Hong Kong Limited, a non-US affiliate of Jefferies LLC and is not registered/
qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may
not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearances
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Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/
or Jefferies policies.
CS - Coverage Suspended. Jefferies has suspended coverage of this company.
NC - Not covered. Jefferies does not cover this company.
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regulations prohibit certain types of communications, including investment recommendations.
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the investment merits of the company are provided.
Valuation Methodology
Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total
return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market
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Jefferies Franchise Picks
Jefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. Stock selection
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Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Distribution of Ratings
IB Serv./Past 12 Mos.
Rating
BUY
HOLD
UNDERPERFORM
Count
Percent
Count
Percent
1008
781
140
52.26%
40.49%
7.26%
263
139
6
26.09%
17.80%
4.29%
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
Please see important disclosure information on pages 126 - 130 of this report.
BABA
Initiating Coverage
27 October 2014
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Please see important disclosure information on pages 126 - 130 of this report.