I have noted my thoughts on Alibaba earlier in August. The market is keen to value the company's equity in the range of $200 b; and I argued that to get to that number the company has to achieve revenues of $87 b in 2024.
I also argued that to get the right perspective we should translate those revenues into Alibaba's GMV (market value of Gross Merchandise Volume) and then into China GMV, and check whether the overall market (China GMV) appears to be achievable.
Subsequently, the company filed its revised prospectus. Based on the revised numbers I attempted to see what it will have to do to get that $200 b.
The key change has been much higher reinvestment rate required to achieve the growth rate. This is what I got:
Can Alibaba achieve those revenues and maintain higher margins during the growth period? By 2024, the China market has to see $5,697 b and Alibaba has to see revenues of $91 b. I have assumed that the market share of Alibaba would reduce gradually from dominant 84% to yet significant 50%. It cannot keep those large operating margins for too long; and it is the same for return on capital. After 2024, the expectation is that Alibaba would become a mature business behaving like one with all the caps in place.
And how can we ignore that tangled web of corporate legal structure?
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