1/ Bernstein piece out today is interesting — they compare the gross vs the net take rates of $BABA vs $PDD. Thread below:
2/ The gross take rates are similar while Alibaba adjusted net take rate (revenue minus sales and marketing spend as a % of transacted GMV) runs at 5% vs $PDD used to run below 2% before a big spike in the most recent quarter to 4% (and PDD have said not to expect this level…
3/ …of profitability to recur as they intend to spend more in H2 21).
4/ This analysis offers an explanation of why $PDD offers merchant a superior ROI on their platform vs $BABA (via extracting a much lower net take rate) and hence is one reason why they have gained share so well in recent years.
5/ This has happened via $PDD reinvesting 2-3% of GMV back into S&M expense, driving user growth, user engagement and stickiness.
6/ Bernstein think Alibaba's net take rate will have to fall to 3% given this competitive dynamic but also (not explicitly mentioned) the increased competitive intensity in the space from live streaming players Douyin & Kuaishou.
7/ This implies a fall in Alibaba gross take rate to 3.5% from over 4.4% today or alternatively, sales and marketing expensve having to increase from 1% to 2% of GMV.
8/ Applying this to the P&L they see this leading to a longer-term core EBITA margin in the 40-50% range for $BABA vs 61.2% in the most recent quarter.
9/ I do think the bigger picture key element when considering $BABA is that Chinese GDP per capita is likely to increase very meaningfully over time, with the most recent CCP 5 year plan for it to get to $30k by 2035 vs $10k now, a tripling which implies a 7.6% annual CAGR.
10/ That's going to drive good growth for Alibaba's core business because of their dominance (58% of China e-com GMV even after share losses to $PDD), despite the market environment becoming clearly more competitive.
11/ Alibaba Cloud is likely a very meaningful upside driver given its dominant position and the fact it has only just turned margin positive after years of heavy investment.
12/ I can understand & support the view that says that looking for oppties amongst high quality Chinese stocks that have been deeply discounted due to regulatory fears makes sense from a LT perspective and online retail is less controversial/ more important to the country/…
13/ …less likely to be wiped out than gaming ("spiritual opium") and hence $BABA is easier than Tencent from that bigger picture standpoint.

Chart shows Alibaba "core core" EBITA margins declining over time:
14/ Bernstein estimate of incremental "core core" EBITA margin fell to 22.4% last quarter:
15/ Alibaba GMV grew around 14% yoy in the most recent quarter:
16/ The big 3 combined grew GMV around 21% (PDD grew 45-50%, JD grew near 25%):
17/ Charts shows progression of GMV market shares — Alibaba losing share from unsustainably high level to still v solid 58% of GMV:
18/ Alibaba is taking 40% share of incremental GMV vs PDD's 30%:
19/ Gross take rate comparison:
20/ Net take rate comparison:
21/ Net take rate adjusted for transacted GMV:

Thanks for reading. END.

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More from @anthonyc3004

2 Jun
1/ Re $SPOT, helpful and positive take-aways from the IPO presentation for a digital label called Believe (believemusic.com), French domiciled and run but with strong market positions in a large number of geographies.
2/ Over time, they plan to be in all the 130-140 geographies that $SPOT are/ will be in.

Key to this business is they are positioned for a move to a digital music world, which they see fully playing out globally by 2030 and within 5 years in Europe.
3/ This is a helpful reminder of quite how powerful a secular tailwind $SPOT benefits from over the next many years.
Read 52 tweets
18 May
1/ On $OSTK, Piper out again, reiterating their conviction in the stock as the most mispriced in their coverage universe.
2/ They see the upcoming launch of tZero Crypto 2.0 as a material unlock to higher Crypto trading activity (the platform currently has a v low trading limit of $500/ week which will change to $25k/ day with the Version 2.0).
3/ Trading vols only $8m in Q1 (and $5m in all of 2020), mgmt said volumes could 10x or more with Version 2.0. As well as higher trading limits, they're increasing tradable cryptos from 4 to 10+ and increasing marketing from $150-250k to $10m/ year.
Read 6 tweets
18 May
1/ $TMUS - very high conviction holding, a few musings. I'd been underwriting to $220 ish on the basis of 15x $15 in FCF/share in 3 years. I see 19.4% IRR based on 15x their guided ("more than") $18bn in FCF by 2026 & adjusting for $60bn buyback.
2/ Some may feel stock right up there and hence missed it but trading at same level as in Nov 20 with super strong FCF growth & buyback story ahead, still looks timely to me and breaking out of 6m sideways trading range:
3/ Guiding to "more than $18bn" in FCF by 26, putting this on 15x and adjusting for $60bn buyback (guided for 2023-25 based on what mgmt consider a "very conservative leverage ratio") gets to $333/ share in 5 years, a very attractive 19.4% IRR.
Read 19 tweets
9 Apr
1/ The more I work on $SPOT the more bullish I get about its long term prospects (and bearish on the long-term prospects for the big labels) and about the fact that consensus/ investors are still pretty sceptical about its ability to break free of the labels' hold on its…
2/ …margin structure, which drives really good upside at the current sub 4x forward EV/sales multiple. I think they are being deliberately very slow with putting through pricing as they currently pay so much of incremental revenue away to the labels.
3/ Game theory wise it makes total sense for them to keep prices low, gain share and hence improve their bargaining power vs the labels to extract better economics over time, at which point they get to keep more of the economics from price rises.
Read 8 tweets
9 Apr
1/ $OSTK - interesting to see Piper call it out as the most mispriced stock in their coverage universe. Front page of note:

They see tZero as worth $500m-740m (vs mkt cap $3.1bn) and see GSA-related revs as contributing 15-25% to total sales over time.
2/ I didn't know that only $OSTK, $AMZN and $TMO won the GSA RFP process out of 15 applicants with $OSTK's best-in-class security commended by the GSA diligence committee, who went through an extensive 18m diligence process.
3/ Piper think this win could make $OSTK an acquisition target for other large box retailers that did not get selected as part of the GSA process. Contract began with 5 federal agencies to buy up to $6bn in annual purchases over 3 years.
Read 5 tweets
7 Apr
1/ Re $GOOGL $GOOG and their cloud business: V upbeat messaging from a Google Cloud partner interviewed by Jefferies. Have read similar stories elsewhere, that GCP is set to really accelerate this year.
2/ Given Google's still attractive valuation (especially factoring in Other Bets losses and cash on balance sheet, even better if assign meaningful valuation to under-monetised YouTube) and upside from Covid re-opening (travel-related ads 12-15% of ad revenues), the shares…
3/ …remain well-positioned to continue to perform in here in my view, despite having outperformed most of FAANG.

Jefferies hosted the CEO of a premier-level partner of Google Cloud.
Read 19 tweets

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