Moving all noise aside and concentrating primarily on a business as if it was not even a public company is what counts (E.g Buying a bakery, hairdresser salon or anything else that produces cash). This will help you genuinely value a business without emotion.
The most important aspect of a business is its ability as to how much cash it can generate on UNLEVERAGED net tangible assets.
Alibaba's business is a lot more complicated compared to a simple hairdresser business but if you really only only concentrate on one business and analyse it thoroughly you will come to a ballpark figure. You wiol find that all internet based companies operate on hardly any Tangible assets which will allow them to generate piles of cash without plowing a tonne of cash into it every year.
Alibaba is one of those businesses that can produce without the need of a shitload of Tangible asset re-investment. If you really look into their balance sheet and their returns you will see that alibaba is an extraordinary business running on very little UNTA (Unleveraged net tangible assets).
I can go on all day but we'll take a rough approach to last year's true earnings (without the EBITDA, or adding back Stock back compensation to earnings) they produced roughly $18 billion (adding back some amortization of intangible assets and the anti-monopoly fine paid but not adding depreciation of PP&E because eventually you will need to reinvest that amount or close to it). In my opinion alibaba required app. $33 billion to operate which is give us about a 55% return on capital employed. An outstanding return for a company of this magnitude, remember this company is investing heavily is R&D.
If you minus all liquid/net assets(which do account for something in the long run) you are virtually buying this company's for approximately $370B
Now we haven't even progressed to making a profit from CLOUD which is inevitable and very enticing because it has a healthy profit margin (Look at AWS) and we haven't accounted for its $11 billion dollars of other income.
They are building an ecosystem and they are investing in Loss-making operations which is questionable for me, are they allocating capital efficiently? Something I can not predict and is highly questionable. Ending it here is a question everyone should ask themselves before investing, Are they created a dollar of value for every dollar made? This is the only measure that counts for generating wealth as an investor, you be the judge.
Submitted August 21, 2021 at 09:34PM by alimessimourad https://ift.tt/3goRgkZ
