Sep 24, 2020
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Alibaba’s Jack Ma: Making Money A Sideline Of Genius

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Jack Ma is a current add to my lifetime list of great operators. Such entrepreneurs embrace not only technology but retailing (Sam Walton and Bernie Marcus at Home Depot ). Media saw Bill Paley and Ted Turner build out TV networks which includes Rupert Murdoch. Let s not forget Walt Disney a 20th Century icon everlasting


Elon Musk and Charles Koch dwell within the periphery not good role models. But not Steve Jobs Tom Watson Sr. Mark Zuckerberg Larry Page and Sergey Brin who birthed Google. Don t omit Jeff Bezos still approaching strong. Bill Gates naturally and an old favorite of mine Joe Wilson of Haloid-Xerox


Jack Ma meets 40 rural teachers funded by him within the Xiaohewan Village Primary School on August 3. [+] Favorite Wall Streeters who started with next to nothing get my nod: Warren Buffett Charles Schwab Larry Tisch Sam Zell and Mike Milken. Carl Icahn and Michael Bloomberg remain fearless and outspoken players


I’ll go on but let s talk about Jack Ma and Alibaba whose footprint in China and elsewhere reaches hundreds of millions of users for Internet retailing. Consider analysts tumbled over each other rushing into print within minutes of Alibaba s June quarter s report. It blew away even the most optimistic of projected numbers


One analyst actually broke down and raised his rating from unattractive to neutral with a $90 price pronouncement up from $80. Have a great career fella. What you ought to know is almost all analyst projections on Internet properties grossly underestimated revenues earnings EBITDA free cash flow and investment spending. Kentucky windage doesn t work on Apple and Amazon either


All this goes on quarter after quarter barring a hiccup here and there at Alphabet that may drive down the stock 10% overnight. PROMOTED Grads of Life BRANDVOICE | Paid Program
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VT Engage Rally The Youth Vote On Campus How can an intruder accurately judge when a cloud computing initiative goes from a deep investment mode to a profit harvesting scenario? It happened at Amazon and Microsoft


Maybe Alibaba is next. Consider BABA s new breakout of segment reporting invariably a bullish stroke comparable with Amazon breaking out its cloud division numbers. BABA s cloud business is exploding at one billion dollar run rate a few quarters out. BABA s digital media and entertainment sectors cover the breakout in mobile browsing


They re a serious player. Which includes share based compensation on all new initiatives BABA is debiting quarterly operating income by some 30%. By comparison an aggressive ethical drug house spends 15% on R&D. BABA s new businesses account for just 15% of total revenues currently. Jack Ma BABA s headman has stated clearly that he desires to be a serious player within the investment management sector


This would cover money market funds ETFs growth and price investing as well as the fixed income sector and indexing plans. This can be a readily scalable sector considering all of the goodwill amassed from e-commerce. Some 434 million active buyers engage with BABA up from 367 million the previous year


Who else can proclaim so? Gallery: 2016 30 Under 30 Asia: Enterprise Tech
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View gallery Maybe BABA can do in 5 or so years what BlackRock accomplished over several decades. BlackRock s market valuation is $59 billion. It sells near 20 times earnings and manages trillions. Let s point out growth stock valuation historically and brought forward to offer day


If this were the year 2000 BABA would sell at 100 times earnings a minimum of 10 times revenues and 50 times EBITDA. BABA presently sells at an estimated 21 multiple of this year s projected EBITDA. So put the stock at $200 on an aggressive valuation of EBITDA. Ten times revenues the stock s valuation is adequate


I always check out the free cash flow yield which this is around 4% greater than double what the S&P 500 sells for. Accepted yardstick for growth stocks valuation is 1 times their growth rate. An organization growing at 25% should sell a minimum of at 25 times earnings. Within the tech bubble of 2000 fly-by-night operators sold at 4 times their growth rate or greater than 10 times revenues when there have been no discernible earnings in sight


On such yardsticks BABA is a good working valuation a great working valuation for an enterprise that may grow revenues at a heady 25% rate. Really BABA s revenues spurted ahead 59% year-over-year. All this while every living economist fears the China slowdown as a dark cloud fast approaching. Core commerce earnings grew 38% with non-GAAP diluted earnings up 33%


These are breathtaking numbers rarely achieved in the entire corporate spectrum worldwide not even by Amazon Facebook and Alphabet. In a worldwide where money managers central bankers and politicians seem resigned to slow growth maybe 2% growth stocks should a minimum of hold their premium at 1. 5 to 2 times the market s multiplier probably more for Internet houses with great franchises


These stocks are under-owned by professional investors. In reviewing recent quarters 13Fs for top intensity players there s scant representation. Such operators remain fixated on one-off investing plays like Valeant Pharmaceuticals similar to Humpty Dumpty sitting on a wall. Past few trading days BABA rose 10% notable for a $250 billion market cap stock


I m betting this baby can appreciate 2% monthly for the subsequent couple of years. Not a fantastic number because it assumes a 25% growth rate or more for revenues EBITDA and non-GAAP earnings. (I could be too low. ) BABA can turn out to be a $500 billion market capitalization piece of paper rivaling Apple and Alphabet displacing ExxonMobil and doubtless Microsoft as a top 5 big cap property


Ironically BABA as yet remains outside the S&P 500 Index and NASDAQ 100. Jack Ma swinging for the fences is connecting. Please watch my recent interview on Tastytrade. com Sosnoff and / or Atalanta Sosnoff s clients own: Alibaba Home Depot Walt Disney Alphabet Apple Amazon Microsoft BlackRock Facebook and ExxonMobil

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