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hey investor friends i'm michelle markey and i have to ask you a serious question would you rather follow the master or the apprentice and i say this because charlie munger doubled down on alibaba not just once but twice in 2021 on behalf of daily journal corporations equity portfolio whereas monish prabrai investing disciple of charlie munger sold most if not all of his alibaba steak in favor of buying process in order to have a steak in tencent and other businesses so let's see who will be more right over time and i'll catch you up today on the latest in alibaba happenings and some highlights from their investor day especially as it relates to their growing cloud business and also what jack ma and ant group has been up to lately and if you appreciate content like this i'd love if you could please like and subscribe to my video and youtube channel because i put a lot into these videos and i greatly appreciate it thanks in spite of negative news of chinese regulatory crackdowns on china's big tech and a slowing chinese economy it seems like no amount of bad news could keep charlie munger from investing daily journals cash into more alibaba because he initially bought alibaba in q1 2021 before adding 83 percent more in q3 2021 and then he effectively doubled that by adding 99 more in q4 2021 to have a total of 602 000 shares and that basically means he doubled his stake in alibaba kind of twice throughout 2021 and he seems to have as high conviction in alibaba because it seems to make up almost as much as his second favorite bank holding wells fargo in his portfolio because alibaba is hovering around a market value of 72 million dollars in the daily journal corporation's portfolio and that's a little bit behind his wells fargo stake of 76 million dollars and a little bit behind his top most holding of bank of america at over 100 million dollars and that's in total of a daily journal portfolio value of 259 million dollars so it seems like even though one could argue alibaba could be growth at a reasonable price or garp maybe to charlie munger it's a wonderful business at a wonderful price and maybe it's becoming even more wonderful the lower the price goes for alibaba so that charlie munger can just keep buying as much of it to his heart's content for anyone who loves following charlie munger one of the greatest of all time investors it's like he's celebrating his 98th birthday with all of us because he usually has daily journal corporations 13f filing come out only a few days after the close of a quarter so we get to see this really early and know what charlie munger may or may not be investing in so that can give a lot of a heads up to shameless cloners who might want to follow in the footsteps of charlie as well as how i think i finally figured out why charlie munger loves alibaba so much and it's because alibaba and and group have a lot in common with some of his favorite companies like with costco and how they charge membership fees and they also try to provide the best quality services and goods at the lowest cost and berkshire hathaway because they're both massive conglomerates and holding companies and then also with an group and his banks because they have financial services and banking services that benefit a lot of people so i think that alibaba and and group seem to manifest in the chinese versions of all of charlie munger's favorite things so kind of is no surprise that he is invested in alibaba and also indirectly ant group 2021 was a tough year for alibaba because its market cap got halved and its stock price declined by 48 and some of this was because they had earnings misses in q1 and q3 2021 and then they also had that 2.8 billion dollar anti-monopoly fine in april 2021 and then things got a little bit better in the summer but then they started getting a little gloomier in the fall where the chinese economy started slowing down so that hurt consumption and then also there was an increasingly relentless wave of chinese regulatory changes that were surrounding antitrust and data protections that were also weighing on alibaba's performance and then alibaba also contributed to the chinese common prosperity of 15 billion dollars so that was another hit as well as they lost a favorable tax status so now they have to pay more taxes going forward so all in all alibaba suffered through a lot of fear uncertainty and doubt in 2021 and all of this culminated where the stock price seemed to hit rock bottom of around 108 dollars and 70 cents on december 3rd where this was the height of a lot of fud surrounding if chinese companies would have to be delisted because there was a lot of concerns with the vie structure and whether chinese companies would be allowed to keep their vie structures in place or not list at all anymore abroad and then top chinese regulators denied that there would be an end of the vi structure but they did release new rules saying that there would be greater scrutiny for any companies that wanted to list abroad so that's definitely still a negative sign for a lot of chinese companies so it's no wonder there's a cloud that's been overhanging both alibaba and many other chinese companies but then alibaba seemed to be bottoming out as it continued to languish in the 110s and low 120s for the tail end of 2021 and alibaba's management's response to this was that they would be overhauling their e-commerce businesses as well as replacing their cfo maggie wu with the deputy cfo toby shu come april 1 2022 and they might have had a little bit of an underwhelming investor day set of plans because that didn't seem to move the stock price around mid-december 2021 and it wasn't until charlie munger bought more as of q4 2021 that the stock price may have jumped a little bit and it may not be as much as when charlie munger first doubled down in alibaba in early october 2021 where the stock price had initially jumped from 140 to almost 180 over the course of a few weeks but then it seemed to tumble down and now we're in the sort of purgatory of alibaba struggling in a really low price and we'll see if alibaba can recover with better news in 2022.
and then alibaba's management must be feeling bullish about alibaba's future prospects because they've decided to increase their share buybacks from 10 billion dollars to 15 billion dollars through 2022 and so that should help put a floor in alibaba's stock price and in addition during their investor day that transpired between december 16 to 17 2021 they had a bunch of announcements and it seems like their company's fundamentals are still holding strong as we can see with some of their financial highlights where we see that their overall revenues went up by 39 percent year on year and in their china commerce segment it's up 41 and then international commerce is up 47 and cloud computing is up 37 and they also have a lot of cash flow so that's a pretty good sign and then they're providing more transparency across their business segments so we can see which companies are in their china commerce and international commerce local consumer services kainao which is their logistics division cloud and digital media and entertainment i know jack ma feels really strongly about his alibaba pictures so i know he wants to do more with hollywood and entertainment and there's also a lot going on with innovation initiatives and others and so those are some of the areas that they're investing in and even though some of these segments are doing better than others like overall their commerce business is still really strong like the biggest in china so that's going to continue being dominant in spite of some maybe slowdowns that maybe will be temporary and then they're trying to grow out new retail communities and marketplaces and also local consumer services taobao deals lazada and logistics and we can see that their cloud computing is starting to be profitable so even though it's just marginally profitable now that's a pretty good sign and then with their digital media and entertainment that's still losing money a little bit along with innovation initiatives and overall their earnings before interest taxes and amortization seems to be in the positive so it's generally a good sign even if a lot of investors weren't really that pressed in spite of alibaba maintaining pretty good fundamentals and so where they're investing in technologies and some use cases that would be interesting to keep in mind and help illustrate what are otherwise sometimes boring financial data is that we can imagine a future where there's a city brain and we can see that they're trying to improve transportation efficiency with artificial intelligence and have autonomous robots that will have a third of the cost versus the industry average where the last mile delivery of 1 million orders are completed and they want to build out their cognitive ai with the world's largest ai pre-training model with ultimate low carbon and high efficiency because all of that is important for also what's a really popular buzzword nowadays of environmental social and governance so i know that that's a really important topic area to alibaba and reducing their carbon footprint while also making society better with technology one of the most exciting areas of alibaba's business is their cloud business which is seeing strong growth in revenues profits and their customer base where they've seen a three-year average revenue per user growth rate of 40 percent plus so that's pretty exciting and that's even excluding one of their top cloud customers which may be a bike dan subsidiary which is a news aggregator ab generally toshaw and it seems like alibaba has been growing rapidly in cloud as they've even overtaken google to be in the number three spot globally in terms of cloud segments and then they're kind of getting closer to amazon every day where amazon maintains their dominance but with amazon having about a 40 share of the global marketplace alibaba stands at 10 of the global marketplace but it's quite possible that at alibaba's current growth rate they could someday by let's say 2030 potentially reach as high as 35 of the global share of cloud whereas amazon could potentially keep declining as it has been in recent years to potentially get as low as only having a 20 share of the global cloud business so let's see how both of these heavyweights in the cloud segment continue to perform over time and who knows if alibaba will eventually catch up to if not surpass amazon because china has way more consumers and businesses than the us and so it stands to reason that there will be way more demand for cloud services the more that china's economy and more economies throughout asia and the rest of the world grow and per gartner alibaba joins the likes of oracle google microsoft and amazon and being among the leaders in cloud databases in addition alibaba is looking forward to growing out applications in cloud 3.0 where we're going to see a cloud network device convergence with 5g internet of things and the metaverse and industrial aiot and autonomous vehicles as well as what alibaba would like to develop more in terms of cloud infrastructure digitalization industry solutions and ecosystem and open source so across all these areas there's so much of a world to pursue in cloud that it seems like the possibilities are endless we should all of course do our own due diligence and homework and not take the works of other people as advice to either buy or not buy alibaba because i'm just some person on youtube and other people who write articles have their own opinions but i think it's helpful that when we form our own investment hypothesis we can then look to other resources to see if they either confirm or reject our own hypothesis so that we can keep doing our homework and then further refine our investment theories and so i think it's helpful to check out these two articles showing some financial metrics for alibaba and these two authors happen to see alibaba as a deep value play where they believe that it's severely undervalued so they happen to be bullish in alibaba but i'm sure you can find just as many articles also refuting why alibaba is not a good investment but if we take a look at these two authors metrics we can see that when alibaba's price was at 118.66 on december 23 2021 the price to earnings ratios were hovering around 12.72 to 16.74 and the earnings per share was around nine dollars and 27 cents to seven dollars and nine cents and the price to sales was at 2.5 times for pretty much both and the book value was also pretty close at two for growth at a good price and then 1.88 for steven fiorillo and then the free cash flow i could only see that stat from steven fiorillo and he said that that was about half of what facebook's free cash flow was so i thought that was pretty interesting to note and you can go ahead and see what they've had to say in their own articles but it just might give you a little bit more to kind of go off of as you try to compare your investing rationale with others and if you're wondering what has jack ma been up to well looks like he's been staying largely quiet and keeping busy with a lot of the regulatory driven restructuring that ant group has to do after its ipo got cancelled and he's been fundraising to the tune of 3.5 billion dollars of which nearly a billion dollars came from a china state-backed group called cinda and they now have a 20 stake in ant and so jack ma has been really pretty much focusing on that i haven't heard all too much of what he's been up to other than him kind of vacationing in europe or something like that and then it looks like most likely whatever restructuring and group has to do will not likely materially affect alibaba's core commerce business as long as alipay services don't get interrupted so most likely alibaba will continue to do business as it has been and keep growing and probably also contribute some funding to help and complete its restructuring per regulations so let's see what happens with all that all in all if we're trying to be good long-term investors and we want to imagine which companies will still have adorable competitive advantage in 10 20 30 100 years from now then i think we should heed the investing wisdom of 98 years young charlie munger because we'll be lucky if we can even just absorb a fraction of his investing wisdom so we make better investment decisions and alibaba still has a lot of room to potentially grow as jack ma wants alibaba to live for at least 102 years until at least year 2100 so even as some pose the challenge that alibaba won't be worth as much as amazon by 2030 to that jack ma says challenge accepted so if you enjoyed this video or learned something please like and subscribe and i wish you well on your journey to being the best investor you can be till next time you
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