Markets often encounter short-term volatility cycles, which present long-term investors with lucrative buying opportunities. Alibaba (BABA) has long been plagued by irrational macroeconomic concerns, specifically within China. As such, the company's share price has experienced an unjustifiable 38.84% decline since November 2014. It is my opinion that Alibaba is extremely undervalued and offers long-term investors an incredible buying opportunity.
This article outlines Alibaba's "hidden" investments, and the current market value of its private ventures. For reference:
- Snapchat, currently valued at $16 billion, is one of Alibaba's 45 investments.
- 15 of Alibaba's private investment stakes are valued at $69.8 billion (40.22% of its total market cap).
- Some notable holdings include: Lyft, Kabam, Jet.com, Tango, and Snapdeal.
Since it's unprecedented September 2014 IPO, Alibaba has been nothing short of a massive disappointment. Jack Ma's company has long performed far below even the most modest of expectations. After issuing public shares at $68, the Chinese e-commerce conglomerate quickly skyrocketed to a high of $120. However, since that early November time frame, Alibaba has slumped 38.84%, closing at $70.03 as of Friday. Now, even with a consensus median price target of $95, 19 buy opinions, and 21 outperform ratings, top hedge fund managers are cutting their Alibaba exposure. Whereas billionaire George Soros recently sold $365 million of Alibaba stock, Chase Coleman essentially liquidated his entire $557 million position. While these men are undoubtedly experienced investors, I believe these fire sales were the result of short-term client pressure to realize immediate returns.
Most every economist agrees China remains a lucrative region; Alibaba is poised to dominate Chinese, Indian, Japanese, Korean, and Southeast Asian consumer markets. However, if this is the case, why has Alibaba shed over $100 billion in market cap since its November highs? The answer pertains to investors' time horizons; for asset managers under pressure to deliver high quarterly returns, Alibaba is simply another security by which traders can utilize sophisticated investment vehicles to yield short-term results. However, for patient investors, Alibaba presents an incredibly lucrative long-term investment. For the sake of simplicity, allow me to outline part of Alibaba's true value in terms of its startup ventures. For reference, Alibaba raised $21.8 billion from its IPO; its notable portfolio holdings read like a Silicon Valley Christmas list, and include the following companies:
Weibo (WB): In late August 2013, Alibaba purchased an 18% stake in Weibo for $586 million. For those unfamiliar with Weibo, it's the Chinese equivalent of Twitter (TWTR). With a current market cap of $2.55 billion, compared to Twitter's $18.15 billion, Weibo has tremendous growth potential. Moreover, the company just announced an earnings beat, having generated $107.8 million in Q2 revenue (vs. estimates of $104.8 million).
Haier Electronics Group (1169.HK): In December 2013, Alibaba invested $361 million in the Haier Electronics Group, an Indian e-commerce and logistics firm. In exchange for the capital injection, Haier sold 9.9% of its logistics unit and 2% of Haier Electronics to Alibaba; additionally, Alibaba received convertible bonds that, if exercised, entitle the company to 24.1% ownership of the joint venture. As of Friday's close, Haier's market cap sat at $38.67 billion.
Alibaba Pictures (1060.HK): Formerly known as ChinaVision Media, Alibaba Pictures is now a $45.67 billion commercial film subsidiary of the Alibaba Group. In March 2014, Alibaba purchased a 60% stake in ChinaVision for $805 million. Shortly thereafter, Alibaba fired ChinaVision's executives and replaced them with internal candidates. Alibaba Pictures is presently funding four Chinese motion pictures.
Intime Retail (1833.HK): Located in China, Intime is a brick-and-mortar fashion chain comprised of 36 luxury department stores. In March 2014, Alibaba purchased 25% of Intime for $692 million. Since then, Intime's Hong Kong listed stock has nearly doubled; Intime's market cap currently sits at $17.4 billion.
Tango: With over 300 million users, Tango is a messaging, gaming, and social networking app. In March 2014, Alibaba led a $280 million fundraising round, of which it contributed $215 million (Tango has raised $369.2 million to date). Analysts speculate that Alibaba currently owns approximately 20-25% of Tango at a valuation of $1.1 billion.
Lyft: The popular counterpart to Uber, ride-sharing app Lyft has seen huge capital inflows over the past year and has raised over $1 billion. Shortly after investing in Tango, Alibaba helped lead a $250 million Series-D venture round that valued Lyft at $2.5 billion. Alibaba has not disclosed its stake in Lyft.
Hundson Technologies: Not to miss out on the FinTech revolution, Alibaba indirectly invested $532 million in Hundson Technologies during April 2014. Processed by Chairman Jack Ma's Zhejiang Finance Credit Network Technology firm, Alibaba acquired Hundson Group (which owned a 20.6% stake in Hundson Technologies). As such, Alibaba technically now owns 20.6% of the $29.04 billion financial software company.
Youku (YOKU): In combination with Yunfeng Capital, a private equity firm owned by Jack Ma, Alibaba spent $1.2 billion in exchange for an 18.5% stake in Youku (a video-sharing company). Much like YouTube, Youku has incredible upside; the investment is attributed to fending off $167 billion Chinese internet rival Tencent Holdings (TCEHY). As of Friday's market close, Youku was valued at $3.44 billion.
Kabam: In exchange for a 10% stake, popular mobile gaming company Kabam received a Series-E investment of $120 million from Alibaba. To date, the company has raised $244.5 million from 10 investors, including Google (GOOGL), and is valued at over $1 billion.
Didi Kuaidi: Having raised $3.6 billion to date, Didi Kuaidi is China's version of Uber. In February 2015, it acquired Kuaidi Dache (an Alibaba investment), essentially the "Lyft" of China, to create a ride-sharing monopoly. Alibaba participated in a $600 million fundraising round led by Softbank (SFTBY) in January 2015, and then led a $2 billion private equity round in July 2015. While Alibaba hasn't disclosed its stake in Didi Kuaidi, the company is valued at $8.75 billion.
Meizu: A relatively small and unknown smartphone developer, Meizu directly competes with Xiaomi - a $45 billion tech giant. In February 2015, Alibaba invested $590 million in exchange for a reported 30% minority stake. Meizu has raised $890 million to date and is valued at over $6 billion.
Jet: A potential future Alibaba rival, and current Amazon (AMZN) competitor, Jet is America's premier private e-commerce platform. In February 2015, Alibaba participated in a $140 million venture round led by Bain and Accel. While Alibaba's stake is technically unknown, I feel safe in estimating it rests between 10-20%. Jet has raised $220 million to date and is currently valued at nearly $3 billion.
Snapchat: Recently valued at $16 billion, popular photo-sharing app Snapchat raised $200 million from Alibaba in a Series-E fundraising round; in exchange for capital, analysts assume Alibaba received less than 5% ownership. As of March 2015, Snapchat has raised $1.2 billion.
Suning (002024.SZ): In a record private equity round, completed in early August, Alibaba invested $4.6 billion in Chinese retail giant Suning. In exchange for the capital injection, Alibaba recieved a 19.9% stake in Suning. For reference, Suning Commerce Group owns 1600+ retail shops and maintains a market cap of roughly $103 billion.
Snapdeal: One of India's most competitive e-commerce companies, Snapdeal recently completed a $500 million private equity deal led by Alibaba; other prominent investors include Foxconn (2354.TW), which invested $200 million for 4.27% ownership, and Softbank. With a private valuation of $6 billion, insiders report Alibaba actually received an equity stake in Snapdeal at a lower valuation. This means it acquired partial ownership at a lower relative price, likely between 5-10%.
The aforementioned 15 reasons to invest in Alibaba are valued at an aggregate $300.7 billion. Even crazier is the fact that Alibaba has significant holdings in a combined 45 private/public companies (30 more than I've mentioned). While most of these massive startups operate internationally, it's entirely fair to compare these billion-dollar "unicorns" to Western startups like Uber, Airbnb, Palantir, SpceX, Pinterest, and Dropbox. Furthermore, it's safe to assume Alibaba's investments will increase over time. Given that these 15 stakes are, at a minimum, worth $69.8 billion, this suggests Alibaba stock is trading at a massive discount.
With a current market cap of $173.56 billion, down from its high of $302.1 billion, one could easily argue Alibaba has experienced a major price correction. However, I anticipate a future upswing in the stock (especially if Chinese markets hold steady). At present, 15 Alibaba investments comprise 40.22% of the company's market cap. This is remarkable! For the long-term, given the company's presence in China, India, and Southeast Asia, Alibaba is possibly one of the best investment opportunities Wall Street has to offer.