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Alibaba’s Fundamental Analysis

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Deciphering Facebook’s comprehensive valuation

Alibaba (BABA) has an EV (enterprise value) of ~$443.7 billion. Peer companies Square (SQ), Yelp (YELP), Alphabet (GOOG), and Groupon (GRPN) have EVs of ~$10.0 billion, ~$3.1 billion, ~$557.9 billion, and ~$2.1 billion, respectively.

Facebook’s EV-to-adjusted-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio for the trailing 12 months is 42.4x. The estimate for 2017 is 25.9x.

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Alibaba’s EBITDA numbers

Alibaba’s EBITDA fell 33.0% to $10.1 billion last year. Analysts are expecting the company to post EBITDA of $17.1 billion this year, implying a potential fall of 25.0%.

Alibaba’s shares are changing hands at a price-to-EBITDA ratio of 44.3x. In comparison, Square, Yelp, Alphabet, and Groupon shares are changing hands at price-to-EBITDA ratios of 478.3x, 64.9x, 20.1x, and 24.7x, respectively.

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A look at Alibaba’s debt position

Alibaba’s balance sheet reflects a total debt of $13.8 billion, with $2.4 billion in short-term debt and $11.3 billion in long-term debt. The company reported total capital of ~$64.6 billion. So its total debt-to-total-capital ratio is 21.3%.

The company’s debt-to-assets, debt-to-equity, and debt-to-EBITDA ratios are 0.09x, 33.1x, and 0.60x, respectively. Delving deeper into the company’s debt ratios, we see that Alibaba has an EBIT (earnings before interest and tax)-to-interest ratio of 25.9x. That provides a clue to the company’s ability to pay interest on its outstanding debt. It’s what analysts call interest coverage ratio. The company has a debt-to-EV value of 3.0%.

Market capitalization

As of September 11, 2017, Alibaba was the second-largest Internet player in terms of market capitalization globally at ~$445.8 billion. In comparison, Square’s market capitalization is ~$10.6 billion, Yelp’s is ~$3.6 billion, Alphabet’s is ~$648.9 billion, and Groupon’s is ~$2.6 billion.

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Stock trends

Alibaba generated investor returns of 14.7% in the trailing one-month period and 74.7% in the trailing 12-month period. The company’s share price rose 1.8% in the trailing five-day period.

Alibaba’s credit rating

Moody’s rating on Alibaba’s debt is A1. The company also has an S&P debt rating and a debt outlook of A+ and stable, respectively.

Inside Alibaba’s cash flow metrics

Alibaba has $22.5 billion of cash on hand. The stock is trading at a price-to-cash-flow ratio and a price-to-free-cash-flow ratio of 32.1x and 33.6x, respectively. Its trailing 12-month EV-to-cash-flow ratio is 31.9x, and its trailing 12-month EV-to-free-cash-flow-to-firm ratio is 33.2x.

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