Overview of Alibaba s IPO Mohd Sakib & Rui Jie Sim

Transcription

1 Overview of Alibaba s IPO Mohd Sakib & Rui Jie Sim

2 Agenda Company Overview Business Model Corporate Governance Acquisitions and Investments IPO Reasons for IPO Capitalization utilization Roadshow and Investor Interest General Outlook Post-IPO 10/12/2014 Wall Street Club 1

3 Company Overview Alibaba Group is China s largest e-commerce company Founded by Jack Ma and 18 employees in 1999 Mission: To make it easy to do business anywhere Focus on leveraging and connecting small businesses Group consists of 6 e-commerce subsidiaries Also includes 4 support businesses for ecosystem Investments and acquisitions add value to structure Operates vast and dominating online marketplace across China Controlling 80% of China s online shopping market Goals: Meet, Work, and Alibaba and Last for 102 years 10/12/2014 Wall Street Club 2

4 Timeline of Alibaba Group 10/12/2014 Wall Street Club 3

5 Business Model 3 largest and most profitable business subsidiaries: Taobao Marketplace Tmall.com China s largest 3 rd party platform for brands & retailers Juhuasuan China s largest group buying marketplace Alibaba s biggest shopping site 7 million merchants Vendors pay more to stand out (ratings) More than 800 million products (search) Think of Ebay.com Part of Taobao, allows official brand stores to list goods (high fees) 70,000+ official stores 4,000+ global brands 57.36% B2C Chinese Website Market Share Think of Amazon.com Provides discounts for bulk purchases and group orders Product daily deals 33.6% market share in discounted group wholesale shopping Think of Groupon.com 10/12/2014 Wall Street Club 4

6 Business Model Other 3 business subsidiaries: 1688.com China s wholesale marketplace Alibaba.com China s largest global online wholesale marketplace AliExpress Global consumer marketplace Domestic wholesale B2B trade in China More than 729,000 merchant buyers $22.7 Billion in transactions Revenue equated to $371 million World s largest B2B marketplace for small businesses (wholesale) Total revenue from three marketplaces equates to $1 Billion Alibaba.com provided 2/3 of this revenue Retail based website for smaller buyers to buy at wholesale price Exposure to US, Russia and Brazil consumers International commercial revenue equal to $105 Million 10/12/2014 Wall Street Club 5

7 Business Structure Most Profitable Business Subsidiaries 82.7% Of Revenues Ancillary Businesses That Support and Regulate The E-Commerce Ecosystem 10/12/2014 Wall Street Club 6

8 Corporate Governance Special Alibaba Partnership Consists of 28 members: 22 Alibaba members and six members from related companies and affiliates new member every year These members nominate majority of board voted on by shareholders No dual-class ownership to concentrate control in few founders Softbank investments in Alibaba Initially bought shares in 2000 with $20 MM investments; increased investments and helped create Taobao Marketplace Currently 34% ownership stake Yahoo investments in Alibaba Initially bought 40% of Alibaba in 2005 ($1 BN) Currently 23% ownership stake 10/12/2014 Wall Street Club 7

9 Revenue ($B) Y/Y Growth Financial Review & Estimates Revenue of $8.4 billion in fiscal 2014 (ending March) Increase of 52.1% over prior year Sequential revenue growth has averaged 72% over the last five years $25.0 $20.0 $15.0 $10.0 $5.0 $ E 2016E 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Revenue (Bil) Y/Y Growth Rate 10/12/2014 Wall Street Club 8

10 Gross Profit ($Bil) Financial Review & Estimates Strong gross margin of 75% in fiscal year 2014 Very reasonable cost of revenue Primarily due to processing fees paid to Alipay Traffic acquisition costs paid to third party affiliates Able to seize the dominance in the most profitable portions of the ecommerce without risks and entanglements Jd.com in China and Amazon in the US $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ E 2016E 76% 75% 74% 73% 72% 71% 70% 69% 68% 67% 66% Gross Margin (%) Grosss Profit ($Bil) Gross Margin 10/12/2014 Wall Street Club 9

11 Adj. EBITDA ($B) Financial Review & Estimates Healthy EBITDA margin of 59% in fiscal year 2014 Increase from 36% in 2013 $14,000 $12,000 $10,000 70% 60% 50% $8,000 $6,000 $4,000 $2,000 40% 30% 20% 10% Margin $ E 2016E 0% Adj. EBITDA ($Bil) Since 2011, Alibaba has turned net income positive $3.8 billion on a net margin of 45% Expect continued profitability with steady margins Due to competitive pressures partially offsetting the operating leverage in the model Margin 10/12/2014 Wall Street Club 10

12 Market Opportunity Over 85% of the Chinese ecommerce Strong GDP growth, combined with higher Internet penetration and mobile adoption Potential to drive consumer spending higher Poised to grow explore wholesaling business According to Euromonitor International, China s real GDP is projected to grow at CAGR of 7.0% and real consumption of 8.3% GDP=7.0% CAGR Consumption = 8.3% CAGR $9.4 $10.1 $10.8 $11.5 $3.4 $3.7 $4.0 $ A 2014E 2015E 2016E China GDP ($trillion) China consumption ($trillion) 10/12/2014 Wall Street Club 11

13 Competitive Landscape Competes with three sets of companies Internet companies with advertising-based revenue models Baidu and Tencent and Google (to some extent) Core advertising-based revenue models China-based pure ecommerce companies JD.com, 58.com, Dangdang, Jumei International and Vishop Holdings Similar to Alibaba in terms of facilitating ecommerce transactions Take on inventory risk and fulfill orders unlike Alibaba US-based ecommerce/auction companies Amazon, Ebay Ebay famously withdrew in 2002, returned in 2012 through Xiu.com 10/12/2014 Wall Street Club 12

14 Competitive Landscape Recent and aggressive acquisition has seen Alibaba expand into multiple geographies and sectors Suggest Alibaba will continue to try to engage new areas and locations Ad-Based Internet Baidu Tencent Google E-Commerce JD.com 58.com Dangdang Jumei Int'l Vipshop & Traditional Retail's Online Platforms Global Internet Amazon EBay 10/12/2014 Wall Street Club 13

15 Acquisitions & Partnerships 10/12/2014 Wall Street Club 14

16 Acquisitions & Partnerships Aggressive expansion strategy Invested approximately $10 billion from 2010 to 2014 to enhance user engagement, improving customer experience and expanding products and services Created an investment arm in the United States focused on building up its social and mobile offerings Led by Michael Zeisser, a former Liberty Media executive High-profile investments include Lyft (Peer-to-peer ride sharing) Tango (Mobile messaging platform) ShopRunner (Subscription service similar to Amazon Prime) Quixey (Search engine for mobile apps) Kabam (Leader in free to play mobile gaming) 10/12/2014 Wall Street Club 15

17 Roadshow and Investor Interest Two-week roadshow blitz started in New York on Sept. 8 th In Asia from Sept. 15 th to 16 th and London 17 th Focus on institutional investors between 35 and 40 institutions placed orders for at least $1 billion escapes small investors Closed order books earlier on Tuesday because of high demand Three tier syndication = 35 underwriters 1 st Tier: six joint book runners on top; 2 nd Tier: eight banks invited to analyst meetings to provide valuations; 3 rd Tier: helped sell the deal Six underwriters: Credit Suisse, Citigroup, Deutsche Bank, Goldman Sachs, Morgan Stanley, JP Morgan Chase & Co ($32 MM each) Rothschild IPO advisor; does not have underwriting operations Other banks (Merrill Lynch, etc.) not included because of JD.com IPO 10/12/2014 Wall Street Club 16

18 General Outlook Post IPO Alibaba More everyday life integration Expansion into food delivery and grocery shopping (Taobao Diandian), entertainment (Taobao Movie) and hotel booking (Taobao Travel) Entering into new markets online pharmacies, movie production company, vintage goods company, Chinese soccer team, etc. Disruption in the banking sector of China Zhejian Ant Small and Micro Financial Services Group processes payments, sells insurance and runs large money market funds Focusing on online transfers, making loans, and opening China s first private bank could be worth an estimated $25 billion in total Alipay China s online-payments market is approximately $1 trillion $778 billion in total payment volume Paypal is only $203 billion Chinese consumers can invest Alipay savings in money market fund Alipay allows Chinese consumers to shop in US online stores 10/12/2014 Wall Street Club 17

19 General Outlook Post-IPO Expansion into US markets primarily through investments Almost 80% of American consumers do not know about Alibaba Various joint ventures and minority stakes in US companies Ex: $200 Million investment in U.S. retail site ShopRunner Inc. Launching more US-centric marketplaces and companies 11Main.com connects US shoppers with specialty shops and boutiques Still testing US waters with prior investments collecting consumer data Will take years to create foothold; Amazon has 20% and EBay has 10% of U.S. e-commerce Worldwide expansion cross-border transactions through AliExpress Focus on emerging markets cheaper access to global goods for South America Ex: less tax provisions for Brazil Alibaba is largest e-commerce site in Russia by monthly users 10/12/2014 Wall Street Club 18

20 Investment Concerns History of Chinese companies with regulatory and financial irregularities Longtop Financial and Sino Forest were delisted because of financial fraud Alipay Scandal Even though it was eventually settled, does not rule out the possibility of similar scandals in the future Opaque structure, Cayman island-based VIE (Variable Interest Entity) Rising inequality threatens to shrink middle-class ambitions in China China s Gini coefficient almost doubled between 1980 to 2010 Surpassed U.S. in /12/2014 Wall Street Club 19

21 Investment Concerns Mobile Monetization Gap needs to be closed Inability to manage the transition will impact on company s top and bottom lines 3.50% 3.00% 2.50% 2.40% 2.77% 2.51% 3.05% 2.52% 2.00% 1.50% 1.00% 0.50% 0.44% 0.55% 0.58% 1.12% 1.49% 0.00% 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 China Retail Marketplaces Mobile Monitization Rate Margin compression Questions arise if the 80% market share and EBITDA margin of 59% is sustainable 10/12/2014 Wall Street Club 20

22 Questions?