Thread by @frankinvesting

Short thread/ $BABA future returns

$BABA returns on incremental invested capital (ROIIC) over past 9yrs is ~18%. Over the past 3yrs it was ~19%. Reinvestment rate over the same time periods was 130% & 102%. That has lead to intrinsic value compounding of 23% & 19% respectively

1/ With Alibaba Cloud requiring a lot of capital and just beginning to approach profitability, I have no reason to believe $BABA won't maintain a similar reinvestment rate & returns over the next 5 years..

2/ The core commerce business will continue to be extremely profitable and produce strong cash flows & returns for the business. I think it's hard to argue otherwise, regardless of any upcoming government crackdowns & interventions.

3/ Therefore, I see no reason $BABA wont continue it's historical reinvestment rate of >100% & returns in the range of 15-20% over the next 5yrs. Let's say 15% to be conservative. That implies an intrinsic value compounding rate of 15% (100% * 15%).

4/ As a bonus, $BABA are currently buying back $15B of shares at the cheapest multiples they have traded in the last decade. If we see even a slight multiple re-rate over the next 5yrs + the buybacks & the intrinsic value compounding, annual returns should be approaching ~20%

5/ Disclosure: long $BABA

Clearly there are a lot of risks involved in any Chinese investment right now. I am personally comfortable with the risk/reward even though most people aren't. Weighting on a $BABA bet is very important.