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Alibaba Group Holding Ltd ADR BABA

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Ant Group Is Restructuring Under Regulator’s Fintech Industry Policies; Immaterial Impact on Alibaba

Iris Tan, CFA Senior Equity Analyst

Analyst Note

| Iris Tan, CFA |

We have more visibility regarding the regulator’s expectations for Ant Group’s restructuring and we think these also apply to China’s fintech industry as a whole. Overall we believe the regulator’s guidelines for Ant’s restructuring are within our expectations for all Ant’s financial activities to be subject to regulations, on par with traditional financial institutions, as mentioned in our Alibaba report published in January. At the current stage we expect the valuation impact of Ant’s restructuring tilts toward our base case and bear case assumptions, resulting in a 29% to 55% reduction to our prior IPO valuation for Ant. The respective cut to Alibaba’s fair value estimate is minimal at 0% to 3%, implying a fair value estimate ranging between USD 313 and USD 304. Alibaba is cheap in either case. We have accounted for the contribution from its holding of the 33% stake of Ant. Alibaba did not disclose the contribution of Huabei to its gross merchandise value but said it is low.

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Company Profile

Business Description

Alibaba is the world's largest online and mobile commerce company, measured by GMV (CNY 6.6 trillion/$1 trillion for the fiscal year ended March 2020). It operates China's most-visited online marketplaces, including Taobao (consumer-to-consumer) and Tmall (business-to-consumer). Alibaba's China commerce retail division accounted for 69% of revenue in the December 2020 quarter, with Taobao generating revenue through advertising and other merchant data services and Tmall deriving revenue from commission fees. Additional revenue sources include China commerce wholesales (2%), international retail/wholesale marketplaces (5%/2%), cloud computing (7%), digital media and entertainment platforms (4%), Cainiao logistics services (5%), and innovation initiatives/other (2%).

c/o Alibaba Group Services Limited, 1 Matheson Street
Hong Kong, Cayman Islands
T +852 22155100
Sector Consumer Cyclical
Industry Internet Retail
Most Recent Earnings Dec 31, 2020
Fiscal Year End Mar 31, 2021
Stock Type
Employees 252,084