Alibaba Group (BABA)

Total return at 5 years: 58.2%/year = 54.9% appreciation + 3.3% dividend. The target price ($1,059) is ex-dividend; the $40 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $1,160 · Multiples $884) exceeds the market price ($119).

Today — with margin of safety: at $119 trades ~86.6% below its value discounted to today (~$884) — the wide discount we require (≥38%, equivalent to a ~15% annual return); the risk is covered by the margin, not the rate.

At 5 years — Muy infravalorado: the target price ($1,059) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years comfortably exceeds the risk-free rate (4.5%) — and the discount reaches the required margin of safety.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($119) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-27.4%/year) than we project (23.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~CNY 9.5 bn of owner earnings in year 5 (vs ~CNY 132.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Resultado operativo después de impuestos (EV/NOPAT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Currency. Alibaba reports in yuan and trades in dollars: the entire fundamental apparatus of this model—revenue, margins, capex, enterprise value, the bridge, and value per share—is in yuan, and the conversion to dollars happens once, at the close of the cascade, at the live exchange rate. The anchor market value (RMB 1,972,020 million) was computed with the quoted price of US$118.90 and the RMB 6.898-per-dollar reference the annual report itself uses for its convenience translations. Each share traded in New York represents eight ordinary shares, so the model's share count (2,404.4 million) is in ADS terms: the annual report's 19,235 million ordinary shares divided by eight. Year-0. The issuer does not tag quarters in the Securities and Exchange Commission database, so year-0 is the fiscal year ended March 31, 2026, and no rolling window is fabricated. The year-0 operating margin is normalized to 6.00% by adding back the fiscal year's verified impairments to reported operating income: RMB 9,515 million of goodwill and RMB 1,729 million of intangibles. Nothing else is normalized: the quick-commerce loss and the AI investment are ongoing operating expense from a strategy in progress, not an isolated charge, and the margin path counts their recovery rather than erasing them. Capital expenditure. The structured capex concept in the filing was abandoned in 2020, so the capital-expenditure series is taken from the annual report's text: RMB 126,063 million in fiscal 2026 versus RMB 85,972 million the prior year, or 12.3% of revenue versus 8.6%. That is why year-0 free cash flow is negative. Year-0 depreciation (RMB 34,963 million) sits well below capex, so nearly all of the excess over depreciation is treated as expansion investment and maintenance is approximated by depreciation (this is not the Greenwald calculation, which would compare fixed assets against sales and, with the fiscal year's 2.7% growth, would give a very different result). Stock-based compensation. The fiscal year's stock-based compensation (RMB 11,180 million) is just 1.1% of revenue but 27% of the flow, so it is expensed two ways: the valuation metric is net operating profit after tax, which already carries it, and the path's operating-cash margin is net of it (6.35% in year-0 versus 7.44% as reported). Guidance. The company does not publish a forecast: in the earnings release for the quarter ended June 30, 2026 the outlook mentions are boilerplate legal language. The path therefore starts from the normalized trajectory and the already-reported quarter, which grew 9% to RMB 268,953 million in revenue. Reported fiscal-year growth (2.7%) is depressed by the Sun Art and Intime divestitures; on a comparable basis the fiscal year grew 11%, and year 1 is anchored to the 9% from the published quarter, between those two readings. Subsequent event. On August 26, 2026 the company completed a placement of new shares in Hong Kong for HK$80,000 million. The model does not incorporate either side of it—neither the incoming cash nor the shares issued—because the filing does not yet disclose the number of shares placed, and backing it out from a price would be fabricating the data; the two sides push in opposite directions and of similar magnitude. The risk is disclosed. Sum of the parts. Terminal value is split across four pieces, each with its own band: core China commerce (70.5% of terminal-year net operating profit after tax, 18 times), cloud and artificial intelligence (23.4%, 22 times), international digital commerce (3.8%, 18 times), and the remaining businesses (2.3%, 10 times). The sum of the four segments by revenue (RMB 1,110,886 million) reconciles to the consolidated figure (RMB 1,023,670 million) by adding RMB 2,340 million of unallocated revenue and subtracting RMB 89,556 million of inter-segment eliminations; the sum-of-the-parts shares are calculated on the consolidated metric.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $1,059 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $119, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $1,059 in 5 years plus $40 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $884. Against the current market price ($119), the margin of safety is 86.6% (trades below the maximum → there is margin) and the total return at that price would be 58.2% annually.

• Multiple versus quality. The nearly 19-times blend is built piece by piece, with China commerce at the floor of its band given its low terminal growth and depressed return on capital.
• The reverse approach. Today's price already discounts a large recovery in operating margin: without it, terminal-year results are not enough to support the sum-of-the-parts valuation.
• Margin of safety. The total return of +58% falls well short of the 15% the method requires to consider there a margin of safety, and the structural holding-structure risk is priced there and not into the multiple.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ROIC exceeds the cost of capital (~10%)
• ✓CFROIC backs up the ROIC (100%, cash vs. accruals)
• ✓Healthy balance sheet (low corporate debt)
• ✓Durable competitive moat (multiple advantages)

• Return on capital versus the bar. The measured level is 4.6%, below the 10% bar, with the numerator depressed by the investment cycle and the denominator carrying RMB 247,378 million of goodwill from past acquisitions.
• Margin and stability. The operating margin went from 14.1% to 4.9% in a single fiscal year: stability is not an attribute of this business today, and that volatility is why year-0 is normalized.
• Cash quality. Operating cash fell to RMB 76,213 million and capital expenditure exceeded it, so free cash flow is negative. Reported net income of RMB 103,592 million is not cash-backed: it includes RMB 66,089 million from the revaluation of investments.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The engine of Chinese e-commerce is merchandise volume transacted times monetization rate: the platform does not sell its own inventory, it charges auction-based marketing services and commissions, and in the fiscal year customer management revenue grew 5% on an improved monetization rate. Cloud's engine is different: infrastructure consumption and model usage, where growth is measured by external revenue (up 45% in the quarter ended June) and margin depends on installed-capacity utilization. Quick commerce is the new and still-negative lever: it grows on subsidized purchase frequency, so its revenue rises while unit economics have not yet closed.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-mar-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Growth is real and volume-driven: quick commerce up 47%, cloud up 34%, and international commerce up 9%, with the monetization rate adding further to the marketplace.
• Growth engine. Two distinct engines: subsidized purchase frequency in quick commerce and adoption of infrastructure and models in cloud. The second is the one holding up the highest multiple in the sum of the parts.
• Deceleration and cycle. Reported consolidated growth decelerated from 8.3% to 5.9% to 2.7%, though the last reading is distorted by asset sales; on a comparable basis the fiscal year grew 11%.

• Relevant in 10 years (recurrence). Repeat consumer spending and an enterprise-compute platform: both categories will still exist in ten years, and the company holds a first-place position in each of its markets.
• Pricing power. The marketplace's monetization rate improved and supported 5% growth in customer management revenue, but at the same time the company is subsidizing price in quick commerce to defend volume.
• Moat and its direction. Wide and stable. It is not declared widening because unit economics in the core business worsened during the fiscal year.
• Capital cycle. Capital is pouring into quick commerce and AI infrastructure in China at the same time Alibaba is investing: it is the classic setup for return compression, and it explains why margin fell so much in a single fiscal year.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $26.8 bn
• !Interest coverage (EBIT / interest)6.3x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 100% of ROIC
• ✕Value creation (ROIC − 10% bar)-5pp
• !Malinvestment test (capex vs incremental ROIC)Capex/D&A 3.6x
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 1.1% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Net cash of RMB 26,844 million: RMB 286,840 million of cash and short-term investments against RMB 259,996 million of total debt.
• Coverage and cash. Finance expense of RMB 9,793 million is covered several times over even by depressed operating income, and the investment portfolio adds RMB 656,745 million of backing.
• Negative free cash flow. Negative RMB 49,850 million in the fiscal year from capital expenditure at 12.3% of revenue: it is voluntary investment, but it leaves the business dependent on its own accumulated cash for as long as the cycle lasts.

• Skin in the game. Not disclosed: the foreign issuer does not file a proxy statement and Item 7 of the annual report was not extracted in this run.
• Capital allocation. A complete shift in a single fiscal year: buybacks fell from RMB 86,662 million to RMB 7,638 million, capital expenditure rose to RMB 126,063 million, and in August 2026 the company raised new capital in Hong Kong.
• Integrity / normalization. The filing discloses without hedging that margins may not return to past levels and that money-losing businesses today may never become profitable. That is candor about its own adverse case.

• Motivated sellers reacting to a depressed headline result: operating income fell 64% in a fiscal year on subsidies, investment, and impairments, and free cash flow turned negative. A holder looking at the year's result sees a deteriorating business, not one that is investing.
• Missing buyers because of the holding structure and the regulatory framework: the foreign shareholder holds contractual rights rather than ownership over the Chinese operating entities, and much of Western institutional capital cannot or will not take on that risk regardless of valuation.
• Free cash flow is depressed by voluntary expansion investment: RMB 126,063 million of capital expenditure against RMB 34,963 million of depreciation, meaning nearly three-quarters of the investment is buying future growth and weighing on today's flow.

All three sources of discount are identifiable and verifiable in the filing, so the discount has an explanation. What the price is not giving away is the result: even with all three, the base-case total return is +58%, because nearly everything depends on the operating margin recovering from 6% to 12%. The RMB 656,745 million investment portfolio the model does not credit is the piece that may explain why the market pays more than the operation alone justifies.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +39%/year (+420% total): the margin of safety protects the downside. The bull (+72%/year, +1392% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Contractual holding structure. The foreign shareholder holds contractual rights over the Chinese operating entities, not ownership. The filing itself warns that a change in regulatory stance could leave the securities worthless.
• Antitrust regulation. After the RMB 18,200 million fine in 2021 the company completed a three-year rectification program; there is new scrutiny of quick-commerce subsidies since 2026, and the European Commission fined AliExpress EUR 550 million under the Digital Services Act, provisioned in the quarter ended June 2026.
• Geopolitics and chip access. Export restrictions on advanced semiconductors that limit compute capacity, temporary inclusion on the U.S. Department of Defense's list of Chinese military companies, and disclosed delisting risk.
• Return on AI investment. RMB 126,063 million a year of capital expenditure with return on capital currently below the 10% bar: if the incremental return does not clear that bar, it is malinvestment no matter how fashionable it is.

Each thinker's analytical framework applied to our data.

• Buffett / GrahamQuality + margin of safety

  Fails the quality gate: ROIC 5% does not clear the 10% bar.

• Peter LynchGrowth at a reasonable price (GARP)

  A hyper-growth growing 23% at a multiple/growth of 1.8 → reasonable for its growth.

• Joel GreenblattCheap and high-return (Magic Formula)

  Earnings yield 24% (EBIT/EV) + ROIC 5% → falls outside the Magic Formula.

• Howard MarksPerception vs reality + cycle

  The price discounts -27% vs our 23%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth KlarmanCapital protection (bear scenario)

  Bear-scenario floor +35%/yr, bull-scenario ceiling +69%/yr over 5y and a +87% margin → capital protected, asymmetry in your favor.

• Pat DorseyMoat strength (Five Rules)

  A wide moat, stable; sources: network effects, efficient scale, intangibles, cost advantage → passes the Five Rules.

• Aswath DamodaranExpectations implied by the price

  Justifying the price requires discounting -27%, within what we project (23%) — the story squares with the numbers.