Yes, BABA is cheap in relation to it's growth rate. To find a comparable first you need to ask if you want one whose margins increased or declined over the last decade? Do you want its stock trading on a US exchange with voting rights, or a VIE in the Cayman islands without them? Should it be headquartered in a nation that respects the rule of law, or one that makes it up as they go along? Does it allow PCAOB oversight on it's audits?
If you think this post meant that I think BABA is over-valued, you misread it. Odds are BABA will turn out to be a fine investment over time at these prices. But it has a number of unique risks, and I'm not going to own anything that I don't feel I understand all it's key risks.
My goal isn't just to shoot fish in a barrel, it's to drain the water out of the barrel and hold the fish down with my boot, so every shot scores.
I bought BABA knowing fully there was hair on the dog, including the VIE structure, risks of CCP rulings, and the risk of delisting due to non-compliance with PCAOB oversight. And as I wrote, I knew that margins had declined. I decided those risks were more than compensated for by the discount the market was offering.
But the point was that I hadn't put enough thought into what was driving the margin decline and how far back it was really evidenced. Again, that meant I didn't fully understand it and shouldn't have been owning it.
My point was I don't believe in relative valuations, every company is unique and has unique risks. Tencent has many of the risks of Alibaba, but not all of them and not in the same proportions and likely it has some that Alibaba doesn't. So I'm not looking to making any comparisons, I'm looking to evaluate every position independently.
Again, there are some legitimate explanations for margin compression at Alibaba and it will more likely that not turn out to be a fine investment from these levels. But until I can understand and confirm them it doesn't belong in my portfolio, and I'm not lacking for lower risk ideas that probably offer as high or higher returns.
Who else in the same industry earn a better net operating margin with the same growth rate?
Genuine question, I’m keen to know.
Thanks for your interest.
Yes, BABA is cheap in relation to it's growth rate. To find a comparable first you need to ask if you want one whose margins increased or declined over the last decade? Do you want its stock trading on a US exchange with voting rights, or a VIE in the Cayman islands without them? Should it be headquartered in a nation that respects the rule of law, or one that makes it up as they go along? Does it allow PCAOB oversight on it's audits?
If you think this post meant that I think BABA is over-valued, you misread it. Odds are BABA will turn out to be a fine investment over time at these prices. But it has a number of unique risks, and I'm not going to own anything that I don't feel I understand all it's key risks.
My goal isn't just to shoot fish in a barrel, it's to drain the water out of the barrel and hold the fish down with my boot, so every shot scores.
Surely you knew about the VIE structure before purchasing it. If you didn’t, then you haven’t done your homework to begin with
Leaving politics aside
Your article is about the declining margin over the past decade, which you were not aware until your listened to a podcast?!
So again, asking a valid question.
Do you have a comparison in place?
Margin vs user/GMV growth?
I don’t mind which one you wish to compare it with. I’m only curious to know if there is any comparison to validate your argument
I bought BABA knowing fully there was hair on the dog, including the VIE structure, risks of CCP rulings, and the risk of delisting due to non-compliance with PCAOB oversight. And as I wrote, I knew that margins had declined. I decided those risks were more than compensated for by the discount the market was offering.
But the point was that I hadn't put enough thought into what was driving the margin decline and how far back it was really evidenced. Again, that meant I didn't fully understand it and shouldn't have been owning it.
My point was I don't believe in relative valuations, every company is unique and has unique risks. Tencent has many of the risks of Alibaba, but not all of them and not in the same proportions and likely it has some that Alibaba doesn't. So I'm not looking to making any comparisons, I'm looking to evaluate every position independently.
Again, there are some legitimate explanations for margin compression at Alibaba and it will more likely that not turn out to be a fine investment from these levels. But until I can understand and confirm them it doesn't belong in my portfolio, and I'm not lacking for lower risk ideas that probably offer as high or higher returns.