OTPP and Alibaba Group
The Ontario Teachers’ Pension Plan (or OTPP) added a new position in Alibaba Group Holding (BABA) during the third quarter that ended in September. The position accounted for 0.09% of the fund’s total portfolio.
The California Public Employees’ Retirement System (or CalPERS) and Third Point Partners added Alibaba to their portfolios in the third quarter.
Overview of Alibaba
Alibaba Group Holding, commonly known as Alibaba, is a Chinese e-commerce player. It’s the largest online and mobile commerce company in the world—in terms of gross merchandise volumes (or GMV) as of 2013—according to the company’s latest F-1 filings.
Alibaba’s initial public offering (or IPO) in September saw an overwhelming response. The stock ended the first day of trading at $93.89. It was up 38% from the $68 initial price set by the e-commerce giant.
Some of its major businesses include:
- Taobao Marketplace—China’s largest online shopping destination
- Alitrip—a leading online travel booking platform
- Alibaba.com—China’s largest global online wholesale platform for small businesses
- Alibaba Cloud Computing—a provider of cloud computing services to businesses and entrepreneurs
- Ant Financial Services Group—a related company of Alibaba Group that operates Alipay and provides payment or escrow services on its marketplaces through contractual arrangements
- China Smart Logistics, or Zhejiang Cainiao Supply Chain Management Co. Ltd.—a 48%-owned affiliate that operates a central logistics information system that connects a network of express delivery companies in China
Shares surge on Singles’ Day sales figures
Recently, shares of China’s e-commerce giant increased after the company said Chinese consumers spent $9.3 billion on goods online on the Singles’ Day holiday on November 11. Reports also cited that Alibaba founder and executive chairman, Jack Ma, said that Alibaba’s financial services’ arm, Alipay, “will definitely go public,” and could see a Chinese listing. The company said at the peak, 2.85 million transactions were processed per minute by Alipay during the Singles’ Day festival.
China retail marketplaces GMV up 49%
For 2Q15, Alibaba’s results beat estimates. It said gross merchandise volume (or GMV) in its China retail marketplaces for the quarter increased 49%. Annual active buyers increased 52% year-over-year (or YoY). It saw 217 million monthly active users on its mobile commerce apps in September. It had $95 billion in mobile GMV for the 12 months ending in September 2014.
Revenue grows, but margins are impacted
Revenue grew 53.7% to $2.74 billion for fiscal 2Q15. However, net income fell 39% to $494 million due to the share-based compensation charges and increased amortization expense. The non-generally accepted accounting principles (or GAAP) earnings before interest, tax, depreciation, and amortization (or EBITDA) margin fell to 50.5%—from 54.4% in the prior quarter.
The decline was attributed to the consolidation of newly acquired businesses—UCWeb and AutoNavi, planned investments in new business initiatives, and increased tactical marketing spending during the September quarter. Diluted earnings per share (or EPS) were $0.20. Non-GAAP diluted EPS was $0.45.
Last month, Market Realist noted that while Apple’s (AAPL) Apple Pay service will challenge companies in the mobile commerce space, Alibaba will get intense competition on its home turf—China—from Tencent Holdings ADR (TCEHY).
In March, Tencent acquired a stake in JD.com Inc. (JD). It’s the second largest e-commerce company in China after Alibaba. For more on this, please read “Why Alibaba and Tencent are trying to enter each others’ turf.”
OTPP’s other positions in 3Q14
As discussed earlier, OTPP added new positions in The Priceline Group Inc. (PCLN), XPO Logistics Inc. (XPO), United Technologies Corp. (UTX), Grupo Aval Acciones y Valores S.A. (AVAL), and Alibaba Group Holding (BABA). Top positions exited in 3Q14 were in Melco Crown Entertainment (MPEL) and HollyFrontier Corp. (HFC).
In the next part of this series, we’ll discuss OTPP’s exit from Melco Crown Entertainment.