Yahoo! (YHOO) is not a hot stock anymore, but like a declining aristocrat, she still has some invaluable gems.
One of them is Alibaba Group (ALBCF) of China, in which Yahoo holds a whopping 43% stake. After the news broke that Alibaba had spun off its Paypal-like online service, Alipay, Yahoo’s share price dropped for three consecutive days. Investors were worried that Yahoo lost control of her most enviable gem.
In my opinion, this event reveals the serious communication problem that exists between Yahoo and Alibaba group. For investors, they should worry more about the management in Silicon Valley than that of Alibaba in Hangzhou.
The spun-off of Alipay may be a convenient arrangement that makes possible Yahoo’s continued operation in the Chinese regulatory environment. I may be wrong, but I believe that Yahoo is still the beneficial owner of Alipay, although nominally it is not. If it turns out that I am wrong, then Yahoo’s shareholders have lost big and the controversy would have to be resolved through a lengthy legal process.
How valuable is Alipay? It’s invaluable.
Like Paypal, Alipay is a third-party online payment service. It has a dominating 49.56% market share in China. Even though the figure below is in Chinese, I would like you to direct your attention to the green pie section which is Alipay’s market share. (See Figure 1)
Figure 1. Market Shares of Third-party Payment Service
I think the figure speaks for itself, but let’s compare Alipay and Paypal for conversation sake.
Paypal’s turnover is about 100 billion USD, and it is valued at about 9 billion USD. But Alipay’s yearly turnover is about 140 billion USD, and most transactions in Alipay are delayed payments, which bring more cash flow to the company. So if Paypal’s valuation is right, Alipay is at least worth 13.6 billion USD. It is more valuable than the listed Alibaba B2B e-commerce website (1688.HK), which is also a subsidiary of Alibaba Group!
I am sure that many others would give Alipay better valuations. Dr. Eric Jackson, for example, gave Alipay a valuation of 23.47 billion USD, based on a P/S ratio of 10.
In short, I will be keeping an eye on this hidden gem through the course of this year. It will be interesting to see this relationship play out.
For further information on the Chinese markets, you may visit www.chinastockdigest.com or join us at www.globalprofitsalert.com for our daily market commentary. I will look forward to bring my exclusive insight to you next week.
Committed to your profits,
Jim Trippon
