Goldman Sachs believes that three scenarios will emerge for the worst valuation of Alibaba.
In the past two months, Alibaba Group founder Jack Ma and his Ant Group have been caught in a storm of antitrust regulation initiated by the authorities. With Jack Ma‘s whereabouts a mystery and Alibaba shares plummeting, Goldman Sachs sees three scenarios for Alibaba’s worst valuation.
Investors’ concerns about anti-monopoly regulation by Beijing authorities have caused Alibaba shares to fall more than 20 percent since their high point last October. Goldman Sachs, an international investment bank, believes that with the significant market sell-off following the regulatory turmoil, there has been a significant expected difference between Alibaba’s true value and its current share price.
On Jan. 4, Goldman Sachs released a report with a valuation of Alibaba.
Goldman Sachs surveyed 149 major brands that are listed on Alibaba’s Tmall and found that 77% of the brands have flagship stores on other e-commerce platforms such as Taobao Mall (owned by Alibaba), Jindo, and Jingdong, while only 11% sell independently on Tmall.
Goldman Sachs surveyed 149 major brands listed on Alibaba’s Tmall. (Image source: Screenshot of Goldman Sachs report)
Around Alibaba’s two core business areas of e-commerce and financial technology, as well as other industry policies such as taxation, Goldman Sachs believes that the following three scenarios will emerge as the worst of Alibaba’s valuation.
- a year-on-year decline in advertising commission revenue growth, with the P/E ratio of the core e-commerce business to be lowered from 18x to 10x given that some of the turnover may be diluted by other e-commerce platforms.
- valuation of the financial business against traditional financial institutions, with loan balances decreasing as the growth rate of platform turnover slows.
- Based on expectations that Chinese tax authorities will continue to enhance data sharing between platforms, Alibaba will no longer enjoy the previous tax benefit of a reduced corporate income tax rate of 15%, with the tax rate rising to 25% for all business lines.
On December 28 last year, Alibaba Group announced that its Board of Directors had authorized an increase in the total amount of the company’s share repurchase program, from $6 billion to $10 billion. The share repurchase program is valid for two years (until the end of 2022).
A share repurchase is the act of a listed company buying back a certain amount of the Company’s outstanding shares from the stock market, using cash and other means. One of the key purposes of share repurchases is to stabilize the company’s share price and maintain its image. In times of crisis, companies conduct crisis communication and hope to convey this message to the market through share buybacks, thus stabilizing the share price and enhancing investor confidence.
Nomura Securities, an international investment bank, said in a report that Alibaba’s share price will remain low in the short term due to uncertainty in financial regulation.
Independent think tank Tianjun Politics and Economics analyzed the cooperation between the family of U.S. Democratic candidate Joe Biden and Chinese Communist Party powerbroker “White Glove” Ye Jianming in “Ma Yun Punched Xi Jinping in the Face and Two Things Led to Officials Making an Example of Him”. On the financial side, the two partners were able to move their funds around the world in the form of investments, with some small sovereign wealth funds in Europe and South America also participating, and using offshore shell companies that could avoid taxes to split the funds and launder them after several rounds. Some of the owners of the funds even became offshore investors and swaggered into mainland China to enjoy some special treatment in terms of policies and credit resources that only foreign investors have.
As an example, the article cites that China earned (total exports minus total imports) $1,485.36 billion from 2014-2016 on foreign trade in goods. After reaching an all-time high of nearly $4 trillion in June 2014, China’s foreign exchange reserves decreased by nearly $1 trillion in December 2016, according to official figures. The $1,485.36 billion earned from foreign trade did not add to the official foreign exchange reserve figures, meaning that China lost at least $2 trillion in foreign exchange reserves.
Between 2014 and 2017, the Biden family and people like Ye Jianming were the most active, and it was precisely during that time period that China lost a large and rapid amount of its foreign exchange reserves.
Xi Jinping also found this situation, but the intricate financial structure made him lament, in recent years, had to constantly voice, asking all departments to “firmly guard the bottom line of not occurring systemic financial risks”.
But Jack Ma said at the Bund Financial Summit in Shanghai on October 24, 2020, that there is no systemic risk in Chinese finance because there is no system. Chinese finance has not fully matured, lacking a healthy financial system, etc.
And the media almost coincidentally noticed that Jack Ma “disappeared”, he did not appear in his own African reality show and acted as a judge of the program “African entrepreneurs”. The British newspaper “Daily Mail” believes that Ma’s absence from the final is “mysterious”. According to the paper, Jack Ma is now “completely out of the public eye. This sudden shift is all the more remarkable given his formerly high profile.
On January 4, the French press commented that “Ma, China’s No. 1 boss who was denounced by democrats for affirming Deng Xiaoping’s June 4 crackdown and who, at age 53, announced a sharp retreat but was finally unable to retreat, has disappeared since his speech criticizing the system at the Shanghai Lujiazui Financial Forum in October.”
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