Alibaba Group Holding is probably “the cheapest company in the world” outside of Russia as investors put a high China risk premium on the e-commerce giant, according to Daniel O’Keefe, a managing director and portfolio manager at Artisan Partners.
Said O’Keefe: “Alibaba trades for a single-digit multiple of free cash flow and three or four times EBIT [earnings before interest and taxes]. So, you know, it’s the largest e-commerce company in the world that is levered to digitization and the expansion of the increasing wealth of the consumer and middle class in China.”
The stock trades for about 12 times projected earnings per share in its March 2023 fiscal year. J.P. Morgan analyst Alex Yao, who is bullish on the stock, wrote recently that net cash and equity investments at Alibaba total about $44 per share, or more than 40% of its stock price. By Yao’s math, investors effectively get Alibaba’s e-commerce business for free when factoring in the cash and investments and its cloud-computing operations.
O’Keefe said: “Everyone just goes, ‘Oh my God, regulation, the Chinese government.’ But you look at the facts, what have they done? Well, they’ve intervened on merchant exclusivity, so they’ve made platforms more competitive. They’ve intervened on payments exclusivity, so they’ve made payments systems more competitive. And they’ve intervened on network exclusivity to make networks more interoperable and more competitive.”
“None of those things are irrational and none of them are outside the bounds of what any developed world regulator would like to do, but cannot because they have to do it through the legislative process, which takes a longer time and it’s harder. So we don’t view what has been done as irrational, albeit it’s happened within the context of a command economy where they can do whatever they want,” he said
I'd love to read some counter arguments to the above. For me, BABA does seem laughably cheap at $91 (at time of writing). There are obviously some general concerns about government intervention and possibly with respect to China/Taiwan tensions; however, it'd be interesting to hear more opinions on this.
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