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Overweight
Alibaba Group Holding Limited BABA, BABA US
Price: $78.39
More Thoughts Post BABA Investor Day; Greater
Price Target: $96.00
Transparency, Solid FY17 Revenue Guide, & Data
Driven Focus
We came away from BABAs Investor Day incrementally positive overall. In addition Internet
to the steady growth core eCommerce business (w/guidance on ex-Youku and Lazada AC
Doug Anmuth
growth accelerating to 36% Y/Y), we see multiple growth opportunities in the new (1-212) 622-6571
areas being incubated by BABA (e.g. cloud computing, logistics, etc.) in the mid to douglas.anmuth@jpmorgan.com
longer term. Near-term focus may shift to BABAs segment breakout at 1QFY17 Bloomberg JPMA ANMUTH <GO>
earnings, but we continue to expect increased monetization through mobile and also J.P. Morgan Securities LLC
higher up the funnel as marketers increasingly utilize BABAs eCommerce platform to Binbin Ding
build brand and drive offline sales. We also believe it was positive for investors to (852) 2800 8572
hear the long-term vision and strategy from Jack Ma once again. binbin.ding@jpmorgan.com
J.P. Morgan Securities (Asia Pacific) Limited
Key updates on disclosures: 1) BABA provided FY17 revenue guidance of 48% Cory A Carpenter
Y/Y vs. JPMe at 45% and Bloomberg consensus at 39%; 2) BABA will shift GMV (1-212) 270-8125
disclosure from quarterly to annually, and indicated 1Q GMV QTD is +22%. While cory.carpenter@jpmorgan.com
still an important metric, GMV has become less representative of the overall J.P. Morgan Securities LLC
business. JPM Comments: The de-emphasis of GMV is generally in-line with our Dae K Lee
previous tone, suggesting BABA is focusing on the broader value proposition of its (1-212) 622-5673
dae.k.lee@jpmorgan.com
expansive platform rather than just pure eCommerce; 3) Business segmentation:
J.P. Morgan Securities LLC
BABA will disclose key financial metricsrevenue, operating profit/loss,
depreciation, amortization, SBC and non-GAAP EBITDAby segments (China Lina Y Rudashevski
(1-212) 622-6416
retail marketplaces, cloud computing, mobile media & entertainment and others)
lina.y.rudashevski@jpmorgan.com
likely beginning at 1QFY17 earnings. JPM Comments: 1) the separate reporting of J.P. Morgan Securities LLC
revenue/profit by business line aims to help investors get a clearer picture of
BABAs core eCommerce business vs. emerging businesses, and 2) separate Price Performance
disclosure of mobile media & entertainment suggests that BABA has escalated the 85
media and digital entertainment business as a long-term strategic focus; and 4)
75
New disclosure on AliCloud paying customers (over 500k in FY16). $
65
Reiteration of long-term vision: $1T GMV by 2020 and the worlds 5th largest 55
economy in 20 years, serving 2bn consumers, creating 100m jobs and supporting Jun-15 Sep-15 Dec-15 Mar-16 Jun-16
10m profitable businesses on BABA platforms. Three focuses to achieve the vision: BABA share price ($)
CCMP (rebased)
globalization, rural expansion, and big data/cloud computing. YTD 1m 3m 12m
Abs -3.5% 1.6% 8.5% -9.0%
Rel -0.1% -0.9% 6.3% -5.1%
Bloomberg BABA US, Reuters BABA
(Year-end Mar, Rmb mn) FY16 FY17E FY18E FY19E FY16 FY17E FY18E FY19E
Net Sales 101,143 146,764 192,108 246,498 ROE(%) 22.6% 20.9% 22.4% 23.0% 52-Week range 87.80-57.20
Operating Profit (EBIT) 29,280 43,140 63,081 83,609 ROIC(%) - - - - Shares Outstg 2,550MN
EBITDA 52,215 69,031 90,430 114,961 Cash 196,422.6 252,891.7 319,705.5 404,653.1 Market Cap(US) US$199,895MN
Pre Tax Profit 81,144 46,615 68,774 90,959 Equity 245,118.1 296,039.5 364,585.8 454,780.8 Free float -
Reported Net profit 71,638 33,398 50,305 67,464 Qtr GAAP EPS (Rmb) 1Q 2Q 3Q 4Q Avg daily vol. 14.7MM shares
Reported EPS (Rmb) 27.96 13.03 19.40 25.77 EPS (16) 11.92 8.87 4.90 2.11 Avg daily val ($) 1,150.57MN
P/E (x) 18.5 39.7 26.7 20.1 EPS (17) E 2.01 2.72 5.47 2.83 Dividend Yield -
Adj. EPS * 16.68 21.14 27.58 35.06 EPS (18) E 3.41 4.20 7.60 4.18 Index (NASD) 4843.55
Adj. P/E (X) 31.0 24.5 18.8 14.8 1M 3M 12M Price Target 96.00
EV/EBITDA (x) 20.6 14.7 10.4 7.4 Abs. Perf.(%) 1.6% 8.5% (9.0%) Price Target End Date 31-Dec-16
P/B (x) 5.7 4.7 3.8 3.1 Rel. Perf.(%) (1.1%) 6.1% (5.3%) Price Date 15 Jun 16
Y/E BPS (Rmb) 91.07 110.97 136.21 169.45
Source: Company, J. P. Morgan estimates, Bloomberg. * Note: Excluding share-based compensation expense.
See page 7 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single
factor in making their investment decision.
www.jpmorganmarkets.com
This document is being provided for the exclusive use of HO SING WONG at CHINESE UNIVERSITY OF
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Doug Anmuth North America Equity Research
(1-212) 622-6571 15 June 2016
douglas.anmuth@jpmorgan.com
What could be the next growth engines? AliCloud, then Cainiao, and maybe
digital entertainment in the much longer term. Jack stressed that they take a 10-year
view for every business before it enters a harvest stage, which then is supposed to
support BABA growth for three years. As such, AliCloud (started in 2009) could be
the next growth driver in next 3 years and Cainiao (started in 2013) could be the
following one in 6-7 years. In addition, Jack views digital entertainment (sports,
entertaining, etc.), which could make people happier, as a growth opportunity
beyond 10 years.
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Globalization
Vision: to reach 2b consumers worldwide, including 600m from China, over 1bn
from emerging economies (mainly B2B business), and 400-500m from developed
economies (mainly B2C).
Key strategies: 1) building key enabling businesses (payment, logistics,
marketing, and cloud computing), 2) building international leadership, and 3)
integrated client solutions (e.g. establishing Tmall flagship store for Premier
League teams).
Ant Financial
Total Ant Financial users grew at a CAGR of 39% from 2013 to 2015, w/451m
annual active users of Alipay (2015), 152m annual active users of wealth
management products (2015), 3m cumulative users of SME loans (March 2016),
380m cumulative users for insurance products (2015), and 130m cumulative
users of Sesame Credit (March 2016).
Digital entertainment
BABA has strengths in both content (Youku, Huayi Brothers, Alisports, Ali
Music, etc.) and distribution (Ali Pictures, Tmall Magic Box, and Youku Tudou).
TV dramas: first-licensing, purchase of not only broadcasting right but also
derivative rights (e.g. adaption to games), and premium copyrights.
Variety shows: exclusive premium content and joint development of original
online variety shows.
Animation: In terms of K-12 animations, Youku will focus on 1) maintaining the
leadership, 2) developing Youkus original animations, and 3) generating
subscription revenue from some popular animations. In terms of Pre-K
animations, Youku will focus on licensing premium overseas content and
developing a specific app for pre-school and elementary children.
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We believe the market will be excited about the significant improvement of mobile
monetization, which, in our view, will drive faster revenue growth vs. GMV in the
coming quarters. Alibaba continues to enhance its ecosystem with positive
developments in logistics (e.g., strategic investment in Suning), Aliyun, cross-border
e-commerce, etc., which will create long-term value for shareholders, in our view.
The O2O-related subsidy and consolidation of loss-making online video arm Youku
and e-commerce platform Lazada should drag on near-term margins, however.
Valuation
We maintain an Overweight rating on Alibaba with a Dec 2016 price target of US$96.
Our price target is based on a 50%/50% weighted PEG and EV/EBITDA valuation.
Key assumptions include:
A target PEG of 1.0x against a CY16-18E EPS CAGR of 31%, which implies a
CY16E P/E of 31x.
Our target CY16E EV/EBITDA multiple of 25x is based on the average of target
EV/EBITDA for Facebook (25x) and Tencent (25x).
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Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple research
analysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the document
individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views
expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of
any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views
expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per
KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or
intervention.
Important Disclosures
Market Maker/ Liquidity Provider: J.P. Morgan Securities plc and/or an affiliate is a market maker and/or liquidity provider in
securities issued by Alibaba Group Holding Limited.
Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Alibaba Group
Holding Limited within the past 12 months.
Client: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients: Alibaba Group Holding
Limited.
Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as investment
banking clients: Alibaba Group Holding Limited.
Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following
entity(ies) as clients, and the services provided were non-investment-banking, securities-related: Alibaba Group Holding Limited.
Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following entity(ies) as clients, and
the services provided were non-securities-related: Alibaba Group Holding Limited.
Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking services
from Alibaba Group Holding Limited.
Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking
services in the next three months from Alibaba Group Holding Limited.
Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services
other than investment banking from Alibaba Group Holding Limited.
Other Significant Financial Interests: J.P. Morgan owns a position of 1 million USD or more in the debt securities of Alibaba Group
Holding Limited.
J.P. Morgan Securities (Asia Pacific) Limited (J.P. Morgan) is acting as Financial Advisor to Alibaba Group Holding Limited
(Alibaba Group) on the sale of 100% stake in Beijing Chuanyun Logistics Investment Limited (Target Company) as announced by
Alibaba Health Information Technology Limited (Alibaba Health) on 15 April 2015. J.P. Morgan will be receiving fees for so acting.
J.P. Morgan and/or its affiliates may perform, or may seek to perform, other financial or advisory services for Alibaba Group and/or its
affiliates and may have other interests in or relationships with Alibaba Group and/or its affiliates, and receive fees, commissions or other
compensation in such capacities. This research report and the information herein is not intended to serve as an endorsement of the
proposed transaction or result in procurement, withholding or revocation of a proxy or any other action by a security holder. This report is
based solely on publicly available information. No representation is made that it is accurate or complete.
Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for
compendium reports and all J.P. Morgancovered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406,
or e-mailing research.disclosure.inquiries@jpmorgan.com with your request. J.P. Morgans Strategy, Technical, and Quantitative
Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-
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196
OW $117 OW $104 OW $97 OW $88 Date Rating Share Price Price Target
($) ($)
168
OW $122 OW $110 OW $93 OW $90 29-Oct-14 OW 99.68 112.00
04-Nov-14 OW 101.80 122.00
140
OW $112 OW $109 OW $96 OW $93 OW $96 29-Jan-15 OW 89.08 117.00
112 20-Mar-15 OW 85.20 109.00
Price($) 07-May-15 OW 86.00 110.00
84 16-Jun-15 OW 86.09 104.00
12-Aug-15 OW 75.11 96.00
56 11-Sep-15 OW 64.63 93.00
27-Oct-15 OW 79.44 97.00
28
28-Jan-16 OW 69.54 93.00
23-Feb-16 OW 68.84 90.00
0
28-Mar-16 OW 75.86 88.00
Sep Dec Mar Jun Sep Dec Mar Jun
14 14 15 15 15 15 16 16 05-May-16 OW 78.83 96.00
Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.
Initiated coverage Oct 29, 2014.
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire
period.
J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated
Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:
J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the
average total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelve
months, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)
coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of
the stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if
applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy
reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a
recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return is
compared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear
in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans research
website, www.jpmorganmarkets.com.
Coverage Universe: Anmuth, Doug: Alibaba Group Holding Limited (BABA), Alphabet (GOOG), Alphabet Inc. (GOOGL),
Amazon.com (AMZN), Bankrate Inc (RATE), Care.com (CRCM), Chegg, Inc. (CHGG), Criteo (CRTO), Expedia, Inc. (EXPE),
Facebook (FB), Groupon (GRPN), LinkedIn Corp (LNKD), Match Group (MTCH), Netflix Inc (NFLX), Pandora Media Inc (P), The
Priceline Group Inc (PCLN), TripAdvisor, Inc. (TRIP), TrueCar Inc. (TRUE), TubeMogul (TUBE), Twitter, Inc. (TWTR), Yahoo Inc
(YHOO), Yelp Inc. (YELP), Zynga Inc (ZNGA), eBay, Inc (EBAY)
Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for covered
companies, please see the most recent company-specific research report at http://www.jpmorganmarkets.com, contact the primary analyst
or your J.P. Morgan representative, or email research.disclosure.inquiries@jpmorgan.com.
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