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by hodder
1900 days ago
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Given the antitrust investigation was ongoing it was clear something would come out of it and a tiny fine is definitely far better than a ton of possible outcomes. I expect the shares to move up on the news but not too materially. Unfortunately it still doesn’t clear up the Ant IPO issue. |
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The reasoning is basically this. Share price was $320 all time high preceding ANT IPO which ANT being valued approximately $300B.
ANT IPO cancellation dropped 10% off BABA market cap, followed by a further tumble on news Jack Ma appeared to be missing/lying low and culminating with a single day drop of 13% when the anti-trust probe was announced.
All in all we are talking about a drop of ~30%+ and 100B in market cap.
If we can assume that BABA no longer relies on Pick One of Two and it's elimination as a practice doesn't materially affect sales (this is consensus) then there is really only 2 major financial impacts associated with this remaining: The reduction in the value of ANT following restructuring and elimination of it's credit products and the fine itself.
The fine isn't material, it's less than 10% free cash flow/5% net cash on hand.
ANT IPO was revalued recently at about $200B, so it lost 33% of it's value.
BABA holds a stake of 30% in ANT so it's investment value went from $100B to $66B, material but not drastic.
So material damage is about ~$70B. However that shouldn't be deducted directly from market cap because the company isn't valued on it's net cash - that would be insane for a growth company. Instead it's generally valued using a method called Discounted Cash Flow. Effectively you estimate future cash flows and discount it by cost of cash.
If you reduce net cash by $70B and run the numbers conservatively it still shows that BABA should be valued at $300-400 if trading at similar multiple to it's peers that face similar regulatory pressure, potential credit tightness and US trade relationship issues.