Charlie Munger Just Bought Alibaba Stock: Should You?

charlie munger just bought alibaba stock should you

Sumary of Charlie Munger Just Bought Alibaba Stock: Should You?:

  • This week, Munger and company turned some heads when the Daily Journal disclosed a $37 million stake in Chinese e-commerce giant Alibaba Group Holding (NYSE:BABA), good for 19% of the company’s equity portfolio, making it the company’s third-largest position behind Bank of America and Wells Fargo..
  • The case for Alibaba as a value stock Alibaba’s stock has languished somewhat recently despite delivering good results, so it’s no wonder Munger might have thought the company a good value at today’s prices..
  • The recent controversy around founder Jack Ma and the aborted IPO for Ant Financial, of which Alibaba holds a one-third stake, has likely played a role..
  • Furthermore, Alibaba is facing stiff competition in the e-commerce space from as well as the explosive discount-buying upstart Pinduoduo..
  • Amid these concerns, Alibaba trades just around 25 times trailing earnings and under 19 times this year’s earnings estimates..
  • That’s much cheaper than all of the FAANG stocks in the U.S., which is surprising given Alibaba’s still strong growth rates and the growing middle class in China..
  • But Alibaba may be even cheaper than that As is the case with several large technology conglomerates, Munger may be looking at various parts of Alibaba’s sprawling empire, and might have realized these parts add up to much more than Alibaba’s current market value..
  • For one thing, Alibaba has a significant amount of cash on its balance sheet, along with large stakes in private companies like Ant Group as well as publicly traded companies..
  • 31, 2021, its balance sheet included $47.8 billion in cash, $22.1 billion in short-term securities, $36.8 billion in other publicly traded equity securities, and another $28.4 billion in equity method investees, such as Ant Group..
  • So while Alibaba currently sports a market cap of $615 billion or so, it’s really only about $500 billion when stripping out these net assets..
  • That’s very cheap compared with Alibaba’s current operating income, which totaled $14.9 billion through the first nine months of fiscal 2021, good for nearly a $20 billion run rate..
  • That’s because the company is aggressively investing the large cash flows from its core e-commerce platform into other parts of its operations..
  • In fact, Alibaba is experiencing losses in a large number of its higher-growth business, including its local consumer services business, logistics arm Cainiao, Southeast Asian e-commerce firm Lazada Group, and its cloud computing and digital entertainment businesses..
  • Over the past nine months, these cumulative losses decreased real operating income by about $5 billion, even though these divisions likely have significant positive value…

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