What You Should Know About Alibaba (NYSE:BABA), the Chinese e-tail market and comparisons with Amazon (NASDAQ:AMZN) on profitability and other trends

1. Alibaba IPO

2. Summary
• China’s e-retail market is the fastest growing market
globally and valued at $294 billion in 2013
• The Chinese market is characterized with huge
marketplaces and not independent merchants -
Alibaba is one of the largest with a user growth of 45%
from 2012 – 2013 and has a transaction volume that is
twice that of Amazon, growing at a faster pace
• In addition, the net profit margin is 24.34% in 2013
which is 11x that of Amazon that validates a premium
valuation of $230 billion + (1x GMV)
• Underserviced Tier 3 and Tier 4 cities in China are a
huge opportunity for e-retailing

3. China etail market
• China has the highest number
of broadband connections with
a penetration rate of only 30%
• Increase of disposable income
in tier -3 and Tier-4 cities will
lead to increase in China’s etail
sector
• China’s e-retail market grew from
$120 billion in 2011 to $294 billion
in 2013
• This is a growth of 145% in 2 years
Source: Economist, 2013

4. Alibaba and China
• China’s market place
is dominated by
Alibaba as of 2013
• China is dominated by
huge online
marketplaces as
compared to the US

5. Users
Users
(million)
2010 2011 Growth 2012 Growth 2013 Growth
Amazon 130 164 26.1% 200 22% 237 18.5%
Ebay 94.5 100.4 6.24% 123.5 23% 140.3 13.6%
Alibaba 61.80 76.3 23.4% 160 110% 231 44.4%
• Alibaba has more active users as compared to Amazon given the size of
the Chinese population and its penetration rate in China
• Alibaba owes its massive scale to the sheer size of the Chinese market,
home to more than 600 million Internet users
• Despite decrease in user growth rate in the last year , Alibaba still
maintains the highest growth rate amongst its peers
Source: Company reports, Internet Retailer

6. Gross Merchandise Value (GMV)
GMV
(Billion
USD)
2010 2011 2012 2013 2014 Mkt Cap
(Billion
USD)
Amazon 51.29 79.42 108.72 140.62 TBD 149.17
Ebay 61.82 68.63 67.76 76.5 TBD 61.91
Alibaba 106.724 173.289 269.87
• Amazon has grown its GMV (includes its products and also 3rd party
products) by 29.34% from 2012 – 2013.
• Ebay has grown its GMV by 12.89% in the same period
• Also, Alibaba has grown its GMV by 55.73% from 2013 - 2013
• In 2013, the combined transaction volume of its consumer shopping
sites in China reached $248 billion, according to its IPO filing last
month. That is triple the size of eBay and more than double the size of
Amazon.
Source: Company reports, Internet Retailer

7. Commissions
Commissions
Amazon 10%
Ebay 9% Paypal charges an additional 3%
Alibaba 3.5%
• Alibaba will charge the least commission for its
“11 Main Street” shop
• Alibaba’s strategy is to be in the volume trade
and also give local small business to sell to a
larger audience
Source: Company reports, Internet Retailer

8. Mobile GMV penetration
Mobile GMV (%) 2012 2013
Amazon 6.5%
Ebay 17% 29%
Alibaba 7.4% 19.7%
• Ebay and Alibaba have shown a 12% increase
of mobile GMV from 2012 – 2013
• Amazon needs to catch up in this segment
that is growing everyday
Source: Company reports, Internet Retailer

9. Differences
• Amazon sells its products and also provides a
marketplace for third party products.
Whereas, Alibaba only provides an efficient
marketplace for sellers and buyers
• Alibaba doesn't actually handle or ship the
goods itself, it just provides the platform for a
shop and customers deal with the brands
directly while Amazon handles logistics that is
a cost centre

10. Key Valuation Items
Alibaba NA 62.12 27.3 46.65 NA 44.43
Alibaba’s price based on a mkt consensus valuation estimate of $230 billion
Amazon and eBay numbers are TTM
Alibaba’s numbers are yearly, Ratios calculated on 2014 yearly numbers
• Amazon trades at 2 times Price /Sales and eBay trades at 4
times Price /Sales
• Assuming Alibaba’s valuation estimates of $230 billion ,
Alibaba is priced at around 27 times sales – which is a
premium

11. Profitability trends
• Alibaba’s Gross Profit
Margin was 2X that of
Amazon in 2013
• EBIT Margin of
Alibaba was 2X that of
Ebay in 2013
• This indicates a
sustainable growth
model in the near
term and higher
retained earnings in
future

12. Profitability trends
• Net Profit Margin of
Alibaba was 11X that of
Amazon in 2013
• Alibaba’s FCF margins
also score highly over
Amazon (12x) and Ebay
(2.5x)
• This indicates an efficient
operating business and a
premium market
valuation to this peer as
indicated earlier

13. Growth rates
• Amazon had an
inflection point in
2013 resulting in
positive earnings
growth
• Alibaba consistently
shows better revenue
growth YOY as
compared to Amazon
and Ebay