Ali Baba goes public

Introduction
 Alibaba Group Holding Limited (also known as Alibaba Group and as Alibaba) is a
Chinese multinational conglomerate holding company specializing in e-
commerce, retail, Internet, and technology. Founded on 4 April 1999
in Hangzhou, Zhejiang, the company provides consumer-to-consumer (C2C), business-
to-consumer (B2C), and business-to-business (B2B) sales services via web portals, as
well as electronic payment services, shopping search engines and cloud
computing services. It owns and operates a diverse array of businesses around the world
in numerous sectors, and is named as one of the world's most admired companies
by Fortune.
 At closing time on the date of its initial public offering (IPO) – US$25 billion, the world's
highest in history – 19 September 2014, Alibaba's market value was US$231 billion. It is
one of the top 10 most valuable and is the 59th biggest public companies in the world by
Global 2000 list. In January 2018, Alibaba became the second Asian company to break
the US$500 billion valuation mark, after its competitor Tencent. As of 2018, Alibaba has
the 9th highest global brand valuation.
 Alibaba is the world's largest retailer and e-commerce company, is on the list of largest
Internet companies and artificial intelligence companies, is one of the biggest venture
capital firms, and one of the biggest investment corporations in the world. The company
hosts the largest B2B (Alibaba.com), C2C (Taobao), and B2C (Tmall) marketplaces in
the world. Its online sales and profits surpassed all US retailers
(including Walmart, Amazon, and eBay) combined since 2015. It has been expanding
into the media industry, with revenues rising by triple percentage points year after year. It
also sets the record on the 2018 edition of China's Singles' Day, the world's biggest online
and offline shopping day
History of Ali Baba & Main events
 On 4 April 1999, Jack Ma and his team of 17 friends and students founded Alibaba.com, a
China-based B2B marketplace site, in his Hangzhou apartment
 In October 1999, Alibaba received a US$25 million investment from Goldman
Sachs and Softbank.
 Alibaba.com was expected to improve the domestic e-commerce market and perfect an E-
Commerce platform for Chinese enterprises, especially small and medium-sized
enterprises (SMEs), to help export Chinese products to the global market as well as
address World Trade Organization (WTO) challenges.
 In 2002, Alibaba.com became profitable three years after launch. Ma wanted to improve the
global e-commerce system, so from 2003 onward, Alibaba launched Taobao
Marketplace, Alipay, Alimama.com, and Lynx.
 When eBay announced its expansion into China in 2003, Ma viewed the American company
as a foreign competitor and rejected eBay's buyout of Alibaba's subsidiary Taobao. Through
 applying existing technologies and gaining trust in the Chinese e-commerce market, as well
as expanding through dominating the market at a loss before making a return on additional
services, Alibaba's subsidiaries outperformed eBay in the Chinese e-commerce market,
claiming a growing percentage of consumers from eBay. Alibaba subsidiary Taobao would
later force eBay out of the Chinese market, with eBay closing its unprofitable China Web
unit, though the two companies would break even six years later.
 In 2005, Yahoo! invested in Alibaba through a variable interest entity (VIE) structure,
buying a 40% stake in the company for US$1 billion.This would as a result net in US$10
billion in Alibaba's IPO alone to Yahoo!.
 According to Li Chuan, a senior executive at Alibaba, the company was planning in 2013 to
open traditional brick and mortar retail outlets in partnership with Chinese real estate
company Wanda Group.
 Additionally, Alibaba purchased a 25% stake in Hong Kong-listed Chinese department store
chain Intime Retail in early 2014.
  In early 2017, Alibaba and Intime's founder Shen Guojun agreed to pay as much as
HK$19.8 billion (US$2.6 billion) to take the store chain private. Alibaba's stake—28% from
2014's US$692 million investment—would rise to about 74% after the deal.
 In April 2014, Alibaba, Coatue Management, and Andreessen Horowitz led a US$250
million Series D financing round that was completed by on-demand transportation
company Lyft, bringing its total amount raised to $332.5 million.
 On 5 June 2014, Alibaba bought a 50% stake of Guangzhou Evergrande F.C.
from Evergrande Real Estate Group Ltd. in a deal that was worth 1.2 billion yuan (US$192
million).
 On 5 September 2014, the group—in a regulatory filing with the US Securities and
Exchange Commission—set a US$60- to $66- per-share price range for its
scheduled initial public offering (IPO), the final price of which would be determined after an
international roadshow to gauge the investor interest in Alibaba shares to shareholders.
 On 18 September 2014, Alibaba's IPO priced at US$68, raising US$21.8 billion for the
company and investors. Alibaba was the biggest US IPO in history, bigger than Google,
Facebook, and Twitter combined.
 On 22 September 2014, Alibaba's underwriters announced their confirmation that they had
exercised a greenshoe option to sell 15% more shares than originally planned, boosting the
total amount of the IPO to $25 billion.
 In January 2017, Alibaba and the International Olympic Committee jointly announced an
$800 million deal that would last till 2028 in where the company would sponsor the Olympic
Games. In September 2018, Jack Ma, the main founder of Alibaba, announced that he would
step down as chairman in a year's time so he could focus on philanthropy. In response to the
announcement, 
 In May 2019, Bloomberg cited sources familiar with the matter as saying that Alibaba was
considering raising $20 billion through a second listing in Hong Kong.[40] On Tuesday, 10
September 2019, Jack Ma officially stepped down as the chairman of Alibaba, Daniel
Zhang succeeded him at the head of the company.
  In September 2019, the municipal government of Hangzhou announced that it was boosting
its monitoring of the private sector by embedding government officials in Alibaba and other
companies

Governance system at 2014-2015

 Jack Ma - Executive chairman
o Founder of Alibaba
o Former CEO of Alibaba
o Highest share-holder in Alibaba

 Jonthan zhzoxi LU Excutive vice chairman

o Former CEO of TAOBAO
o Former AliPay president
 Daniel Zhang- CEO
o Former CEO of Taobao
o Former president of Tmall (owned by Alibaba)
o Former COO of Alibaba group
 Joseph Tesai - Vice executive chairman
o 2nd largest share-holder in Alibaba
o Co-founder of Alibaba
o Former COO of Alibaba
o Former CFO of Alibaba

 J. Michael Evans President 

o former vice chairman of Goldman Sachs
o former chairman of Goldman Sachs Asia
 Walter Teh Ming KWAUK Independent Director
o Former Director of Corporate Strategic Finance and Tax, Asia Pacific at Motorola
Solutions, Inc. from 2003 to 2012.
o former Non-Executive Director of China Fordoo Holdings Limited since June 9,
2014.
o former Independent Director of WuXi PharmaTech (Cayman) Inc
o Former Independent Non-Executive Director at Sinosoft Technology Group
 Chee Hwa TUNG serves Independent Director
o Vice Chairman of the Twelfth National Committee of the Chinese People's
Political Consultative Conference of the PRC
o Founding Chairman of the China-United States Exchange Foundation
 o member of the J.P. Morgan International Council, the China Development Bank
International Advisory Committee
o member in the Advisory Board of the Schwarzman Scholars Program at Tsinghua
University.
o Former Chairman and CEO of Orient Overseas (International)
 Masioshi SON director
o founder, chairman and chief executive officer of SoftBank Corp
o chairman and chief executive officer of several other SoftBank subsidiaries and
affiliates, including SoftBank BB Corp., SoftBank Telecom Corp. and SoftBank
o chairman of Yahoo Japan Corporation
o Chairman Corporation
My comment on the high board of directors:
- Although all of them were founders of Alibaba but they did lack the experience to take
critical decisions and put the strategies of the company except for J. Michael Evans
Alibaba business model
- Key partners:
o Banks
o Government
o Media
o Parcel services
o Companies and affiliated entities
o Subsidiaries
o Tabao market place (a mobile commerce destination)
o TMALL (a third party platform for brands and retailers)
o Rural Taobao program that enables rural residents and business to sell agricultural
products to urban consumers
o Juhuasuan (a sale and marketing platform for flash sales)
o Alitrip (an online travel booking platform)
o 1688.com (an online wholesale marketplace)
o Transport providers
o Network of sellers
o Suppliers and manufacturers
o IT cloud companies
o Joint ventures (dalian wanda group,SAIC,etc)
o Acquisitions
- Key Activities:
 o Business identities
o E-credit lines
o Inspection services
o Engineering
o Customer service
o Payment processing
o Logistics
o Shipping
o Branding
o Innovation
o R&D
o IT infrastructure maintenance

- Value proposition:
o To make it easy to do business anywhere
o To enable business to transform the way they market
o Open collaborative e-commerce system
o Range of products
o Trading functions
o Electronic payment services
o A shopping search engine and data centric cloud computing services
o The company also provides pay for performance and display marketing services through
its alimama technology platform
o Alibab cloud computing platform services
- Customer relationships:
o Consumer to consumer
o Business to consumer
o Business to business sales services via web portals
o Online auction hosting
o Online money transfers
o Mobile commerce
o Automation
o Self-service
o Customer assistance
o Switching costs
o Price based
o Online
 o Personalized service
o Forum and events
o Same side and cross side network effects
o Benifets to each group exhibit demand economics of scale
- Customer Segment:
o Massive
o Multisided
o Digital shoppers
o wholesalers
o exporters
o importers
o companies and individuals
- Channels:
o Websites
o Subsidiaries
o Affiliates
o Apps
o Payment systems
o Media
o ARI
o PR
- Key resources:
o Big data
o E-commerce platform
o Alibaba cloud computing platform
o Network of subsides
o Know how
o Market size
o Shopping technology
o Cloud computing services
o Intellectual property
o Recommendation algorithms
o Its online sales and profits surpassed all US retailers (including wal mart,Amazon & eBay)
Combined in 2015.operations in over 200 countries
o Companies and affiliated entities
o Employees
- Key resources:
o Acquisitions
 o Joint ventures
o Marketing
o Data centers
o Logistics costs
o Payment processing costs
o Warehouses
o Employees
o Legal
o Traffic
o Taxes
o Economies of scope
o Economies of scale
o Shipping costs
o Fulfillment
o Technology
- Retail sales:
o Commission on reseller sales
o Subscriptions
o Value added service
o Value added services
o Listing fees
SWOT Analysis
PESTEL Analysis
Reasons for the IPO
 to secure budgets for acquisitions.
 to expand outside its home country.

Pricing of The IPO

 carried out by the company and representatives of the underwriters
Alibaba’s capital structure
 total sum of capital was $60,000, borrowed from a group of 18 people.
 Alibaba used to generate its revenue from high-margin listing and advertising fees on its
marketplaces.
 It has no inventory.
 debt to asset ratio was 51.9% which implies that over half of total funds were from debt.
 after IPO, the debt to asset ratio dropped to 36.8%. lowering the leverage and decreased risk.
But the control of founders was decreased.

Poor Governance problems

Alibaba has been experiencing many challenges during its activity.

- Its share price has been falling in the NYSE. The good reputation of the corporation is at stake of being
tainted if the challenges would not solved.

-The root cause of the challenges in the corporation has been claimed to be poor governance within it.
Since the corporation’s creation, it was under the management of Jack Ma until 10th of May, 2013 when
he stepped down. Jonathan Lu became the new CEO and since then the corporation has been taking
significant steps.

-For instance, the IPO venture in 2013 happened under the management of Lu. However, governance
issues did not disappear even after Lu’s management beginning.

- An example of the governance problem is the failure to be allowed to Hong Kong Stock Exchange. It
was largely contributed by poor governance within the corporation.

-Poor governance within the corporation is also demonstrated through the disadvantaging of investors by
Alibaba. Most investors were eager to be involved with Alibaba Holdings due to its market success and
its luring IPO.

- However, the investors fail to see the corporation’s poor governance.

- The insiders exercise their permanent control in the corporation. They hold a very small ratio of equity
capital. In the corporation, there are several ways to divert value to the affiliated entities but the
mechanisms to prevent it are totally weak.
- This means that the amount of wealth the corporation accumulates as a profit would not be shared
among the shareholders who have invested in Alibaba Holdings.

-This fact leads to disadvantage of the shareholders because they are not able to return their investments.
Therefore, the poor governance of the corporation leads to the mistreatment of the investors.

Alibaba Financial analysis till now for investment

Annual revenue
year 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010
ANNUAL REVENUE 376844 250266 158273 101143 46204 5250 34517 20025 11903 6670
 4

REVENUE
REVENUE Linear (REVENUE)

400000
376844

350000

300000

250266
250000

200000

158273
150000

101143
100000
76204

52504
50000
34517
20025
6670 11903
0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Revenues are growing which is catchy for investors

INCOME STATEMENT analysis

 GROSS OPERATING
year PROFIT INCOME NET INCOME
2019 172758 57084 87600
2018 144023 67561 63985
2017 99647 45930 43675
2016 66788 28200 71460

INCOME STATEMENT
GROSS PROFIT OPERATING INCOME NET INCOME

200000

180000

160000

140000

120000

100000

80000

60000

40000

20000

0
2019 2018 2017 2016

Net income is fluctuating by finally it is back on track

Balance sheet analysis
year Total assets total liabilities total equity
2019 965076 466000 499076
2018 717124 348301 368823
2017 506812 225021 281791
 2016 364245 146908 217337

balance sheet
Total assets total liabilitis total equity

1200000

1000000

800000

600000

400000

200000

0
2019 2018 2017 2016

The company is healthy

Cash flow statement analysis

Cash from operating Cash from investing Cash from financing Net change in
year activities activities activities cash
2019 150975 -151060 -7392 -4232
2018 125805 -83764 20359 56334
 2017 82854 -79579 32914 38227
2016 56836 -42831 -15846 -1375

Cash flow Statement

Cash from operating activities Cash from investing activities
Cash from financing activities Net change in cash

200000

150000

100000

50000

0
2019 2018 2017 2016

-50000

-100000

-150000

-200000

The company has to increase its cash sources as negative cash flow is not a good indicator

Liquidity Ratios
Alibaba current ratio
year 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010
 1.301 1.81 2.576 1.79 2.374
current ratio 4 9 1.9464 1 3.58 1.815 9 2 24.626 1.1108

As the assets are increasing so the current ratio is a bad indicator that the company ability to pay short
term debits is decreasing

Alibaba debt ratio

year 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010
 long term 0.193 0.243 0.03
debt/capital 0.1552 0.215 1 0.177 3 0.4301 0.67 7 0.028 0

long term debt/capital

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0
2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Analyzing the trend it is decreasing which is a very good indication as it implies business stability again

201
year 2019 2018 2017 2016 2015 2014 2013 2012 2011 0

Debit /equity ratio 0.220 0.287 0.285 0.231 0.334 1.009 2.5462 0.037 0.028 0
 7 7 7 5 1 1 3 4

Debit /equity ratio

3

2.5

1.5

0.5

0
2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Since the ration is decreasing this implies that debit ration is

decreasing which is a good indicator
Alibaba profitability ratios
GROSS MARIN
year 2019 2018 2017 2016 2015 2014 2013 2012 2011 2
Gross 66.033 74.53 71.853 70.62
Margin 45.0901 57.2284 62.4163 4 68.722 6 1 67.271 1 75.5

Gross Margin
80

70

60

50

40

30

20

10

0
2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Gross margin is decreasing which is a bad indicator

OPERATING MARGIN
year 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010
Operating 30.586
Margin 15.1482 27.8936 30.3601 29.2235 5 47.5482 31.6586 25.7179 11.1065 6.5217

Operating Margin
2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

6.52; 3% 15.15; 6%
11.11; 4%

25.72; 10% 27.89; 11%

31.66; 12% 30.36; 12%

29.22; 11%

47.55; 19%

30.59; 12%

This implies that the sales are declining or margin is decreased which
is our case

EBIT margin
 year 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010
Ebit 30.360 31.658 11.10
Margin 15.1482 27.8936 1 29.2235 30.5865 47.5482 6 25.7179 7 6.522

Ebit Margin
50

45

40

35

30

25

20

15

10

0
2 0 19 2 0 18 2 0 17 2 0 16 2015 2014 2013 2012 2 0 11 2 0 10

EBIT margin is declining which as above implies that they are selling with lower margin

EBIDT MARGIN
YEAR 2019 2018 2017 216 2015 2014 2013 2012 2011 2010
EBITD 24.985 36.961 39.392 35.847 36.378 50.703 34.359 30.062 11.106 6.521
A 8 1 9 3 4 1 8 4 5 7

EBIDTA
YEAR Linear (YEAR) EBITDA

2500

2019 2018 2017 2015 2014 2013 2012 2011 2010

2000

1500
Axis Title

1000

500

216

24.99 36.96 39.39 35.85 36.38 50.7 34.36 30.06 11.11 6.52
0
1 2 3 4 5 6 7 8 9 10

Axis Title

EBIDITA is decreasing due to increasing of operating costs

PRE TAX PROFIT MARGIN
YEAR 2019 2018 2017 216 2015 2014 2013 2012 2011 2010
PRE TAX
PROFIT 24.98 36.96 39.39 35.84 36.37 50.70 34.35 30.06 11.10 6.521
MARGIN 58 11 29 73 84 3 98 24 65 7

PRE TAX PROFIT MARGIN

60

50

40

30

20

10

0
2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

Pre tax profit margin is decreasing which is consistent with the above data
NET PROFIT MARGIN
YEAR 2019 2018 2017 216 2015 2014 2013 2012 2011 2010
NET -
PROFIT 23.24 25.56 27.5 70.65 31.69 43.9 24.3 21.11 9.93 12.0
MARGIN 58 77 94 54 28 56 47 36 87 24

NET PROFIT MARGIN

70.66

43.96

31.69
27.59
25.57 24.35
23.25
21.11

9.94

2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

-12.02

Net profit margin is declining cooperating with above data

ACTIVITY RATIO
ASSETS TURNOVER
ASSETS
year TURNOVER
2019 0.3905
2018 0.349
2017 0.123
2016 0.2775
2015 0.2983
2014 0.4707
2013 0.5412
2012 0.4242
2011 0.3146
2010 0.1599

ASSETS TURNOVER

0.54

0.47

0.42
0.39

0.35
0.31
0.3
0.28

0.16
0.12

2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

This is an indication that Alibaba is increasing its efficiency (good

indicator)
ROE”RETURN ON EQUITY”
year ROE-RETURN ON EQUITY
2019 13.1836
2018 14.072
2017 12.8371
2016 28.5685
2015 15.4491
2014 76.9325
2013 1677.108
2012 13.5678
2011 0
2010 0

ROE-RETURN ON EQUITY

1677.11

76.93
13.18 14.07 12.84 28.57 15.45 13.57 0 0
2019 2018 2017 2016 2015 2014 2013 2012 2011 2010

ROE is declining which means that the company is poorly managing the investment and not generating
enough income
RETURN ON ASSETS
ROA -RETURN ON
year ASSETS
2019 8.3136
2018 8.5641
2017 8.1339
2016 19.5609
2015 9.5208
2014 20.9777
2013 13.5659
2012 9.8814
2011 4.2506
2010 -1.206

ROA -RETURN ON ASSETS

20.98
19.56

13.57

9.52 9.88
8.31 8.56
8.13

4.25

2019 2018 2017 2016 2015 2014 2013 2012 2011 2010
-1.21

Return on assets is declining due to increase of operation profit

RETURN ON INVESTMENT
year ROI RETURN ON INVESTMENT
2019 8.3136
2018 8.5641
2017 8.1339
2016 19.5609
2015 9.5208
2014 20.9777
2013 13.5659
2012 9.8814
2011 4.2506
2010 -1.206

ROI RETURN ON INVESTMENT

25

20.98
19.56
20

15 13.57

9.88 9.52
10 8.56
8.13 8.31

5 4.25

0 -1.21
2008 2010 2012 2014 2016 2018 2020

-5

Return on investmet is stabilizing after a great decline which implies that it is beginning to saturate
around this value
Final decision

I wouldn’t recommend to invest in this stock as the company seems risky

specially after Mr. Jack MA stepped out of his position although the company is
taking some steps towards increasing their efficiency (this company’s stock is
expected increase or decrease dramatically)