1. Alibaba Group
(BABA)
Analysts: Weifeng Liang,Bowen Wu

2. Sector: Technology
Current Price: $92.99(As of Nov 12)
Market Cap: 232.48B
EPS: $4.33
52 Week High: $ 109.87
52 Week Low: $ 59.25
General Information
83%
4%
11% 2%
% of Revenue in September Quarter 2016
Core Commerce
Cloud computing
Digital media and
entertainment
Innovation initiatives
and others

3. Investment Thesis
New
Retail
Model
Cloud
Computing
Recommendation: Strong Buy
Target Price: $267
MOS: 65%
Rural
Taobao

4. Investment Thesis 1

5. NEW Retail Model
Digital Medias
&
Entertainment
Platforms
Rural Taobao
O2O
Services
VR Shopping
Big Data
Cainiao
Logistics
INTELLIGENCE
INTERACTION
DIVERSIFICATION
ECOSYSTEM
Urban Customer
Base

6. Investment Thesis 2

7. Blue Ocean: Rural Taobao

8. (In Trillions CNY) 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
China
Retail GMV
30.15 34.58 37.18 39.96 42.96 46.18 48.95 51.89 55.00 58.30 61.80 65.51
YOY% 15% 7.5% 7.5% 7.5% 7.5% 6% 6% 6% 6% 6% 6%
% of Online
Market
12.70% 15.10% 16.59% 18.08% 19.57% 21.06% 22.55% 24.04% 25.53% 27.02% 28.51% 30.00%
Online Market
GMV
3.83 5.22 6.17 7.23 8.41 9.73 11.04 12.47 14.04 15.75 17.62 19.65
(In Trillions CNY) FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026
Alibaba Retail
GMV
3.09 4.04 4.76 5.57 6.47 7.44 8.44 9.53 10.71 12.01 13.42
(In Millions CNY) FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026
China Retail
Revenue
80,033 101,027 119,048 139,205 161,715 186,096 210,965 238,149 267,835 300,225 335,539
YOY% 26% 18% 17% 16% 15% 13% 13% 12% 12% 12%
Alibaba’s Market Share: 74%
Revenue/GMV=2.5%
New Retail Model Blooms Alibaba’s Revenue From Retail Market

9. Investment Thesis 3

10. Cloud Computing
Society
Governance
Business
Commercial
Behaviors
Financial
Services
Digital Medias
&
Entertainment
Logistics
Information Infrastructure Supplier
Data Pool
Applications

11. 263 326 448 550 828 1431
2351
3108
4644
7880
0
2000
4000
6000
8000
10000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
AWS Revenue
Amazon AWS Revenue(In Millions USD)
Geometric Average Growth Rate: 45.9%
24%
37%
23%
51%
73%
64%
32%
49%
70%
2007 2008 2009 2010 2011 2012 2013 2014 2015
YOY%

12. (In Millions CNY)
FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026
Cloud
Computing
650 773 1,271 3,019 4,830 7,729 12,366 19,785 31,657 45,902 66,558 96,509 139,938 202,910
YOY% 19% 64% 138% 60% 60% 60% 60% 60% 45% 45% 45% 45% 45%
Wide Applications & High Growth Momentum Drive the Revenue

13. DCF Analysis

14. (In Millions CNY) FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026
China Retail
Revenue
34,517 52,504 76,204 80,033 101,027 119,048 139,205 161,715 186,096 210,965 238,149 267,835 300,225 335,539
YOY% 59% 39% 34% 26% 18% 17% 16% 15% 13% 13% 12% 12% 12%
China
Wholesale
2,197 2,300 3,205 4,288 5,856 7,379 9,297 11,714 14,760 17,417 20,552 24,251 28,617 33,768
YOY% 5% 39% 34% 26% 26% 26% 26% 26% 18% 18% 18% 18% 18%
International
Retail
392 938 1,768 2,204 2,535 2,915 3,352 3,855 4,433 4,876 5,364 5,900 6,490 7,139
YOY% 139% 88% 25% 15% 15% 15% 15% 15% 10% 10% 10% 10% 10%
International
Wholesale
3,768 3,913 4,718 5,425 6,130 6,927 7,828 8,845 9,995 10,795 11,658 12,591 13,598 14,686
YOY% 4% 21% 15% 13% 13% 13% 13% 13% 8% 8% 8% 8% 8%
Cloud
Computing
650 773 1,271 3,019 4,830 7,729 12366 19,785 31,657 45,902 6,6558 96,509 139,938 20,2910
YOY% 19% 64% 138% 60% 60% 60% 60% 60% 45% 45% 45% 45% 45%
Entertainment
&
Innovations
540 1,748 5,510 6,174 15,952 19,142 22,971 27,565 33,078 38,040 43,746 50,308 57,854 66,532
YOY% 224% 215% 12% 158% 20% 20% 20% 20% 15% 15% 15% 15% 15%
FY2016 FY2017 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 FY2024 FY2025 FY2026
Total
Revenue
(In Millions
CNY)
101,143 136,330 163,140 195,018 233,480 280,019 327,996 386,027 457,394 546,722 660,574
Total
Revenue
(In Millions
USD)
15,686 21,143 25,301 30,245 36,210 43,427 50,868 59,868 70,936 84,790 102,447
YOY% 35% 20% 20% 20% 20% 17% 18% 18% 20% 21%
Future Revenue Breakdown Analysis

15. DCF Results
Current Price: $92.99
Target Price: $267
MOS: 65%
Assumption:
Revenue Growth Rate: 20.85%
Constant Growth rate: 4%
Discount Rate: 11%
16.85% 28.85% 20.85% 22.85% 24.85%
10.00% 61% 67% 71% 75% 79%
10.50% 57% 63% 68% 72% 76%
11.00% 53% 60% 65% 70% 74%
11.50% 49% 56% 62% 67% 71%
12.00% 45% 53% 59% 64% 69%
MOS Sensitivity Analysis
Growth Rate
WACC

16. Relative Valuation

17. Key Ratios Comparison
P/E P/B ROE ROA Finl Lev
Revenue
(in million)
Profit
Margin
Gross
Profit
Margin
Alibaba 66.65 5.80 34.50% 22.63% 1.71 15,686 70.00% 66.00%
Amazon 180.51 23.78 4.97% 1.00% 4.97 107,006 0.56% 33.04%
Industry Average 69.31 12.52 18.93% 6.38% 3.36 27,864 18.37% 34.93%
0
40
80
120
160
200
P/E P/B Finl Lev
Alibaba Amazon Industry Average
0.00%
20.00%
40.00%
60.00%
80.00%
ROE ROA Profit
Margin
Gross Profit
Margin
Alibaba Amazon Industry Average

18. P/B P/E Beta ROA(%) Log Revenue
Alibaba 11.5 111.17 1.189216 22.63 10.20171
Industry 12.57 53.38 1.226547 6.38 10.04093
Regression Analysis
0
20
40
60
80
100
120
P/B P/E Beta ROA Log Revenue
Alibaba Industry

19. Scenario Median Multiple Implied Price Margin of Safety
Price/Free Cash Flow 22.807 419.5667 0.78
EV/EBITDA 38.28732 593.9992 0.84
Price/Sales 3.406661 137.824 0.325
Median Implied
Price
419.5667 0.78
Precedent Transactions

20. Valuation Spread
Margin of Safety Number of Valuations
40% > MOS 1
40% > MOS > 50% 3
50% > MOS > 60% 7
MOS > 60% 20
Total 31

21. Risks and Hedging Strategy
• SEC’s Investigation On Accounting Practices and Sales Figures on Singles' Day
ü Increased Transparency on New Business Affiliates
ü Change of Accounting Method won’t Hurt Alibaba’s Business Model & Profitability
• China’s Potential Downward GDP Growth
ü Booming Middle Class
ü Rural Market Expansion and Increased Income
• Trump’s Potential Policies to Disrupt Trade with China
ü Small Revenue Contribution from International Commerce and Growing Presence in
Southeast Asia

22. Conclusion
² Advanced New Retail Model
² Rural Taobao’s Expansion
² Cloud Computing’s Wide Applications
² Excellent Profitability and Operating
Efficiency
Recommendation: Strong Buy
Target Price: $267
MOS: 65%